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ways to build income, building wealth, tips to build income

It’s All About Creating Income

Lots of people worry about saving millions of dollars. If you generate passive income, you won't need so much in savings.

I was listening to talk radio the other day (because pretty much all music these days is freaking miserable) and there was a guy who was trying to sell his “get rich quick with real estate” program.

I wasn’t very interested in his real estate program, but I was really interested in his philosophy on money, because he summed it up better than I’ve heard it summed up before. He is successful because while everyone else is trying to build savings, he has been building income.

When he said that, it hit me. We are all trying to build income; most of us just do a really crappy job of it.

A lot of people who save for retirement are thinking about reaching some magical number. Maybe it’s $1 million. These people think that if they can just save $1 million then they’ll be rich.

But what are they going to do with that $1 million once they stop working?

They are going to use it as income!

Instead of getting paid $50,000 a year from their job, they are going to pay themselves $50,000 a year out of their $1 million of savings. So while they think their goal is to have $1 million, their real goal is to be able to make $50k a year without having to show up at a job. (feel free to substitute different numbers if your goals are different from $1 million or $50k a year)

The secret to retirement is not savings; it’s income!

Income Is The Real Goal

So now that we’ve come to the realization that the goal is not a big pile of money, does this change the approach?

income
photo credit: flickr.com/stevendepolo

To answer that we need to know if it is easier to save $1 million or to generate $50,000 a year of passive income? Neither one is easy, but I think it’s worth trying for the passive income. If I had a trick to get that much passive income today then I’d probably quit my job. However, here are a few places to start:

Dividend Income – If you have been building savings then you probably already have some dividend income. It might not be much, but every bit helps. If you have $10,000 in high yield stocks getting you 4%, then that’s $400 a year on top of any gains (or losses) you might get from the stock price.

Incidentally, the brokerage business is super competitive, so a lot of good companies are offering free stocks or cash to sign up.   Robinhood is one company I like – its amazingly easy to use, gives you access to the stock market and gives you some free stock to sign up – you can do it here.  Or click on the button below:

Get Robinhood Here

Rental Property Income – If you can buy a house with cash and rent it out, you can earn 100% of the rent (minus maintenance costs) as passive income, which is $12,000 a year if your can pull in $1,000 a month. Even if you have a mortgage on a rental property, any positive cash flow is passive income.

Loaning Money – One way to build income is to loan money via peer-to-peer platforms. There are two major ones: prosper.com and lendingclub.com. The peer-to-peer industry has had problems with growth and has recently moved away from its emphasis on the individual investor. However, both prosper and lendingclub allow you to automatically reinvest your interest payments. Also peer to peer lending generally has return that higher that bond coupon payments or stock dividends. This blog has covered lending club extensively, how much you can make with it, a lending club profit calculator and how lending club makes saving easier.

A Website – I make about $400 a year with pay-per-click ads on this website, while I have done zero SEO and have very few advertisements. If you take the time to build a website and monetize it more than I do this one, it could definitely give you $1,000 a year or more as long as you make semi-regular updates (which you can pay someone to do). You can also start a successful email marketing campaign which can help generate traffic to your site.

Own a Business – Maybe you can start a business and then pay someone to run it for you. Think about owning a restaurant and just coming in once a month to make sure no one has burned it down. You could own any kind of business as long as you are willing to trust someone else to run it for you while you just pocket all the profits. This one takes the most work, but the earning potential is essentially unlimited.

Building Income is Worth a Shot

So as you can see above, it’s not easy to create a large amount of passive income. And all of the ways to generate income (except potentially owning a business) require that you have money to begin with. In summary, building passive income is freaking hard!

But so is saving millions of dollars.

And while $1 million might run out one day, a steady stream of $50k a year is never going to dry up. You just have to wait for that next payment to come in and you have money to spend yet again.

Readers: What are you doing (if anything) to build yourself some passive income?

Read More From The Thousandaire

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20 thoughts on “It’s All About Creating Income”

  1. TX CHL Instructor

    “(because pretty much all music these days is freaking miserable) ”

    I’m a fan of classical music. In fact, if I had my choice between listening *only* to music composed before 1850 and music composed after 1850 for the rest of my life, I would choose the former in a heartbeat. There is still a station in Dallas that plays classical music pretty much all the time (except for broadcasts of city council meetings on Wednesday). Failing that, I have a pretty extensive library of classical music that I can listen to pretty much any time. I have a large portion of it on my cellphone.

    However, most of the time, I don’t even bother with WRR or my classical music collection. I subscribe to several podcasts that I download for listening during my daily commute (which is currently too long, owing to my new job…). With the variety of podcasts available, you don’t really have much of an excuse to listen to commercial radio, unless you are just a glutton for punishment.

    Oh, and back on topic: I am definitely a fan of passive income, and I’m working on that right now. I’m up to about $500/year net, although I would have to classify most of that as “semi-passive” because if I quit tending to it, it tapers off and eventually goes away. The only truly 100% passive income would be an annuity or other interest-only source, which requires savings.

  2. I am focusing on passive income. I am working on increasing dividend income, which so far this month I have made $28. Not enough to survive, but each month my numbers are growing as I am putting more money into it. 🙂

    Saving a million dollars scares me because I am afraid but very confident that I will live to be over 100 (most people in my family live that long). If I get $1,000,000 saved by age 60, but have another 40+ years to live, the 1 million won’t last. But, if I have passive income of $50,000/year, I am confident that the money will last. Also, I can leave that passive income to someone else (family, charity, etc.).

  3. I figure out new alternative ways to create income every day as long as it stays consistent with what I am currently doing

  4. I think I’m years away from passive income. I’m happy with diversifying my active income for now, then perhaps one day work on investing in something that pays dividends.

  5. My problem with how most people define passive income is being a landlord or owning a business is not passive. It takes work. Sure, all investments do, but there is a big difference between worrying about the latest hail storm and taking calls from tenants about the leaking toilet than rebalancing a portfolio.

    So, if I want to manage real estate, I would do that for work. If I want to retire, I’ll working on saving money.

    1. If you are paying a management company to act as the landlord and do repairs then you don’t have to do any work.

      You can create truly passive income as long as you are willing to pay for people to do the work you aren’t willing to do yourself (up to 100% of it). It just cuts into your profits and requires a level of trust in other people not to mess up your passive income.

      1. Hmmm…do you have any long term experience you care to share? or is this all just conjecture?

  6. I think that you are missing the point that generating income and building savings go hand in hand. If you had a million dollars in savings you would have a passive income stream in the form of interest or dividends. Using your dividend example of 4%, you would be raking in $40,000 a year. Unless you are sleeping on your million big ones…! The only way to generate passive income is to invest your savings.

    1. You are missing the point: investing your savings is ONE WAY to generate passive income. If you start a web based business with a few hundred bucks and build it to the point where it’s making $10k a month in revenue and you are paying other people $5k a month to do the work, then you’ve created passive income without being a millionaire first.

      Sure you could do it with dividends, but that’s just one way.

  7. I try to develop as many sources of income I can. This may mean cashing in some of the assets I accumulated over the years. For example, I inherited a Indian Head penney collection from my Dad. Right now it is not worth very much, but it may in the future. I do not need to sell it now, so I will hold on untill it is worth more. Another source of income.

  8. I am excited by this post!

    It sounds like this is an epiphany for you, but I don’t know if it was a “hey, huh, I didn’t think of that” or a come-to-Jesus epiphany.

    The current standard savings model requires people to save millions (yes, multiple millions will be required for anyone your age by retirement), invest it and get 8-10% returns every year (yeah, right) and then to withdraw a “sustainable” portion of the retirement savings/earnings each year (which the latest academics put at NO MORE than 4%. In order to do this, one would have to save a minimum of 1.66 million.

    $66,666 @ 25%tax = your target $50,000. $1,666,666 * 4% = $66,666. Further this only partly factors in inflation. Younger people today could live three or four decades past their working lives. At a very meager 2% inflation one would lose 18% of their purchasing power in just ten years, every ten years.

    The current savings model is able to focus everything down to just one number, net worth. With your previous posts, your race to a million and the prominence of net worth in your financial dashboard (which I like and use), I figured you firmly fit in with the standard saving model.

    Could you elaborate on what you are thinking now? Are you thinking of changing to a focus on income? Are you thinking of adding an additional component of income to your existing savings model? Or are you simply coming to the realization that this huge pile of money you’re saving has the purpose of generating income LATER in life?
    I think the answers can have critical implications to your retirement planning. Both ways can get you to a secure future but the paths are wildly divergent.

    1. For the last two months I’ve been working on a new website that I’m hoping will generate a significant amount of income. It’s still going to be a while before it’s ready to launch, but right now this project is my latest attempt at building income (which could one day become passive, but will obviously not be passive during the start-up phase).

      I’m cautiously optimistic that this new idea is going to move me significantly closer to my financial goals.

  9. i was looking through my finances earlier today and as i looked at my financial goals and how long it will take to get there, i couldn’t help but think of how much quicker i could get to where i want to be if i could find ways to supplement our income.

    dividend and real estate aren’t really an option, because we don’t have the capital to invest up front.. but we are exploring niche sites and a few other options.

  10. Bethy @ Credit Karma

    There are a couple of things I’m working on to build passive income, and other things I’m toying around with just to see if they go anywhere. It’s always nice to have side projects, regardless of whether or not they end up making money.

    As a side note, what talk radio do you like to listen to? The DH and I like to fall asleep listening to talk radio and we’ve enjoyed listening to Judge John Hodgman lately. Hilarious.

  11. I remember back to “Intro to Business” when I answered that I’d rather work in Government than Corporate and was royally blasted by the instructor. The class was required for a Criminal Justice degree which explains my presence in the class, although I found the class thoroughly enjoyable. Anyway, my two cents are that government pensions are a great leg to the retirement table. I think of retirement as a table. The majority of Americans have one leg under that table and it’s called social security. A very wobbly table. The more legs you can put under that table, the better off you will be. My legs consist of

    1. Government Pension (62% of my highest 3 years for life)
    2. Conservative interest off my retirement savings (401k; Roth IRA; IRA)
    3. Cashing out of my current residence and downsizing after retirement. Adding the profit to life savings.
    4. Conservative interest off of life savings-CD’s; Non Retirement Savings Accts
    5. Social Security

    My spouse also has all of the above.

    I’m only 48, so if social security is there, great. If not, oh well.

    If that’s not enough to do it (sarcasm) then my daughter’s are going to have to pony up and start tithing 10% to the “Church of Mom & Dad”.

    There are a lot of great government jobs out there, and some pay very well. Almost all of them have an excellent defined pension.

  12. MoneySmartGuides

    I am using rental property income and dividend income as my ways of building passive income. I also have a blog, but the income from that at the moment is negligible.

    I keep a spreadsheet for the year that I update to show how much passive income I earn each year. I make is a goal to try and beat it every year.

  13. Brilliant Finances

    I like the design and layout of this site, and the article was entertaining. I’m an Entrepreneur myself and am always looking for ways to earn income. Some things I’m doing are:

    *I’m paying down high cost debt (if the interest rate is higher than I can yield on investments it needs to go)
    *I started a Blog
    *I still earn from a MLM business I had 10 years ago, and I haven’t done anything with it for several years
    *I’ve flipped real estate that I bought from a tax sale
    *I’m still looking for more ways

  14. This is a great outlook–it’s not about savings, it’s about what you will live off of (whether that comes from savings or dividends from investments or from working)! Great article!

  15. This article has a different appearance and the writing style is truly good. It is not only about income, but also future income. Dividend income and website seemed to be more interesting to me than other ones.

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