Passive Income in 2021

What is Passive Income?

Passive income is wealth building with minimal to no effort. It is the fruit that is produced through the initial investment of your time and finance. It is heavily sought after by individuals who are just starting on their finance journey or are looking for a different stream of income from their active income. It is popular among the different streams to have counter to actively being paid for your time. Powered best by the law of compounding. A popular formula for calculating the effects of compounding is as followed.

The Rule of 72

t = 72/r

The "t" stands for "time" which gives you the number of years for doubling. The "r" stands for "rate" which is used for the interest rate for investing. This is a basic version of the "Rule of 72, but it is highly touted as the eighth wonder of the world by Albert Einstein. As opposed to the other Eighth Wonders such as:

The International Space Station, The Panama Canal, The Palm Islands of Dubai, The Empire State Building, The Terracotta Army, The Astrodome, The Taj Mahal, King Kong, Andre the Giant, and The Grand Canyon

The first known reference of this rule can be found in Luca Pacioli's book, "Summary of Arithmetic, Geometry, Proportions, and Proportionality” which was published in 1494.

There are various updates to the "Rule of 72", but it is something to consider when making financial plans and calculating for passive income. Let's look at a few ways that you can earn passive income to get back on topic.

Three Ways to Produce Passive

Below are a few ways to address how to make an initial investment in passive income. Some you may have heard of before others. Others you may be new too. Let this be information that you use while you learn or act upon for your initial investment.

#1 Stocks

Stocks have been a historical asset to obtain and trade for a while now. With books written on different trading and investing strategies, it can be difficult to process how to start. A lot of people look at stocks as an appreciable asset to trade-off when a target is set at the desired profit range. But what keeps people from starting in stocks is the belief that you need to put a large amount in to start. Though you do need a sizable account to procure a better rate on appreciation, you don't need $1000 to start. You can start for as little as a dollar. You could buy candy worth more than $1. You could also put $1 into passive assets that pay you a dividend.

In the stock market, some stocks pay a percentage of what the stock is worth back to the shareholders of the stock. These are named "Dividend Stocks". Among dividend stocks are a variety of options. You can seek out "Monthly Dividend Stocks", You could look at quarterly schedules for dividend payments to plan out a strategy to get paid either monthly or weekly by these dividend stocks. You could also look for a class-based dividend stock in the following:

Dividend Achiever - A dividend stock that has performed for 10 or more years.

Dividend Aristocrat - A dividend stock that has performed for 25 or more years.

Dividend King =A dividend stock the has performed for more than 50 years.

When searching for dividend stocks, you want to pay attention to the payout ratio and the dividend yield. A healthy dividend payout ratio would be between 35% to 55%. A good Dividend Yield would be between 2% to 6%.

I would recommend looking up stock information on dividend.com.

There are also different types of Stock that pay a dividend, such as an ETF. ETFs are Exchange Traded Funds that can take a diverse sector in the market to be purchased as a stock. ETFs are usually holding various stocks within their fund, so these can be a good way to diversify with minimal effort. You can look specifically for High Yield dividends ETF's or Dividend Growth ETF's. However, ETF's usually have a commission for them. Keep that in mind if you decide to purchase one.

If you are interested in stocks but haven't started you could start by signing up for Webull or Robinhood.

You could also try Acorn if you want a more automated option.

#2 Real Estate

Real Estate is another asset class that will pay you passively for owning it. As of now, there are few ways you could go about this. The first way is inexpensive to owning and managing properties. You can put as little as a dollar into Real Estate Investment Trust called REITs. REITs are on the same line as dividend-paying stocks, because they are dividend stocks. The difference in REITs to regular dividend-paying stocks is that REITs have to pay their shareholders a dividend. Traditionally, dividend stocks don't have to pay you a dividend. Many have cut their dividends to address other issues that they are dealing with. REITs do not have that luxury. REITs are required to distribute 90% of their taxable earnings. They also are a popular look for dividend stock investors.

The second way to earn passive income is through an online real investing platform. Online real estate investing platforms work by allowing people to buy a percentage value of a property. When the property or property rent is paid, the online real estate investment portfolio pays out a small percentage of the payment to those that hold the property shares. There will also be information about the specific property on the property's profile such as if it is a business or residential property. You can also see the safety rating of the area that the property and more about the tenant paying the rent on the property.

If online real estate investing platforms intrigued you, then you can look at fundrise.com. You need an initial investment of at minimum $500 to start.

The third way and most expensive way to make passive income are to own a property that you rent out with the assistance of a property management company. The property management company would run your property without you needing to associate with the tenants. However, this is the most expensive way to earn a passive income because you are going to need to get your hands dirty and put some effort in finding, buying, maintaining, and getting the appropriate documents to rent out your first property. Afterward, you need to find tenants and a property management company to have this up and running to a point where you can obtain passive income.

#3 Creating Online Content

This passive income idea is for creative people. You need to create content that is going to engage your audience. As of today, it is more accessible to make free or affordable content. However, the cost of making this content is time. The reason that time is the biggest problem for you is that you aren't just creating one piece of content and making yourself passively wealthy on this one content. The internet just like the world is always running, always changing, always moving forward rather you like it or not. You have to make content that is consistent with this fast-paced environment. You have to stay relevant to your audience, which is a hard spot to be in because you are competing with a large group of millions of content creators. You have to advertise, create, and maintain a constant flow at the bare minimum to get to a point of notoriety that you are established. The good news is that if you can stay consistent, then you will make passive income on content no matter how old or new it is. Especially if you have a partnership through a sponsor.

Conclusion

These are the choices you have for making passive income. None of these options are going to be easy. At best you would have to put in a large sum of money for a quick head start for passive income if you are not already doing so. At worst you would have to dollar cost average each month to start making passive income slowly. It will take time, but with consistency, you will see the results you desire.

Disclaimer

I am a finance enthusiast. Not to be confused with a finance professional. I love everything about finance, but I could not in good conscience give you information claiming it to be an expert's opinion. I highly recommend doing your research and talking to a professional to get the best results for your journey.

I hope this was helpful.