Finances

Why is Passive Income So Important?

I’m sure you have all heard of Passive Income. For those who have not it’s a form of regular income that you don’t have to work for. Instead of you working for your money, your money is working for you. Money that you earn that requires little to no effort.

The IRS states passive income can come from two sources: rental property or a business/partnerships in which one does not actively participate, such as being paid book royalties or stock dividends.

There are numerous types of passive income. Many in the FI community choose dividend investing. Others may choose funds and/or ETF’s. And still others may choose real estate. Or maybe a little bit of each. Only you can decide which is right for you!

When your passive income equals or surpasses your monthly expenses you can consider yourself financially independent. You could even choose to retire if you want to or be a stay at home Mom/Dad, volunteer or feel free to change careers. Pursue something more rewarding if you are unhappy in your current position regardless of what wages are being offered.

Over the years my husband and I have owned several residential properties and flipped houses. We’ve had success with each of these. However, after having children we are no longer actively pursuing these avenues.

Scattered Thoughts

As of this moment I have not settled on one process. I am split between dividend investing for growth and income, and Vanguard Funds such as VTSAX.

I am currently flip flopping from one to the other due to the fact that I want to KISS – “keep it simple stupid” to having confidence or over confidence in some cases with my stock picking abilities. So I do both.

When I have more than a few minutes of free time for research, this is when I tend to initiate new positions into some of the best businesses in the world.

Small positions in most cases. Into businesses that have a solid history of long term growth and income. Although the past can in no way predict the future, it is a starting point.

Anyone Can Invest in Stocks

Anyone can be an investor in dividend stocks by using excess cash to build a stream of passive income.

By simply purchasing a small piece of high quality businesses you too can become an investor. These are businesses that sell products and/or services to consumers, other businesses, and/or governments globally. And have essentially thousands of employees working to grow the companies’ profits and in turn growing the companies’ dividends paid to their shareholders.

Being a dividend stock investor initially takes some time doing thorough research before entering a new position. After having chosen high quality world class businesses, regular reviews are necessary to be sure the companies fundamentals are intact and still in line with your values and moving in the right direction consistently growing earnings and dividends.

When my family life is the busiest, most of the time, this is when I throw all I have at the moment into VTSAX! I am a huge fan of Vanguard Funds in case you haven’t noticed. Something I learned early on from the FIRE community. I’ll write more on that in a later post.

Now that my brokerage Schwab went to $0 fees for trades as many have and more are following suit. It makes more sense for me to put my money to work as soon as it becomes available. Why wait!? Timing the market is not my thing.

Conclusion

Several years ago my family was facing some serious health crisis. There was a real possibility I would become a widow with three young children. Thankfully, that didn’t happen.

What it did do was change my thinking of FI or at least my path to liquid FI, with a more thoughtful emphasis on income producing assets. ie: Dividend Investing.

My plan is to increase my Passive Income as quickly as possible to ensure financial stability for my family. It makes more sense for me to pursue this path rather than keep an extra large emergency fund.

How many variations of Passive Income do you pursue?

~M

 

 

 

 

 

 

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