Can passive income make you rich?

Can passive income make you rich?

Passive income can make you rich if you continue to build income streams. Generating passive income is a slow start, but can build up to a full-time income or more. Typically,  you need to invest money to make passive income or build an asset which provides passive income.

Imagine, earning $100 per day in passive income. You are earning $3,000 per month without having to do much of anything.

You’ve built a system which makes you money. You can keep building that system if you want to crank out more income.

 Luckily for you, I’m going to show you how passive income can make you rich. With enough hard work or investment capital, you can have a significant cash flow every month.

20-090 - Can passive income make you rich

This article may contain affiliate links which pays a commission and supports this blog. Thank you for your support!

Can passive income make you rich?

Passive income can make you rich, but more importantly it provides cash flow. With free cash flow, you are able to invest more money on a consistent basis. Through consistent investing, you can become rich.

The mistake a lot of people make it’s trying to take profits too early. Maybe you’ve purchased a rental property which pays you $200 per month after expenses. Most inexperienced investors spend that $200 rather than reinvesting.

Another mistake people tend to make is retiring too soon. Passive income has the ability to bring in enough income which covers your base expenses. However, you can’t become rich if you are only covering your base expenses.

One of the best rules of passive income is to retire when your passive income is three times your base expenses. You have one times your income for expenses, one times for taxes, and one times to keep on investing.

Click to Tweet! Please Share!Click To Tweet

How does passive income make you rich?

Passive income makes you rich if you continue to invest your income into more investments. The more of your income you invest into passive income investments, the more income that will be produced by those Investments. Essentially, you are using your money to buy more income.

Look at it this way. When you’re first starting out, your passive income investments will not produce a lot of income. As time goes on, your investments start to make you more and more money.

For a lot of people, their Investments start producing small dividends, even less than a dollar.

Maybe you have put your first $100 into a dividend stock which pays 4% yield. You are only earning $4 every year, but it’s completely passive.

How much you make in the beginning doesn’t matter. What matters is that you consistently stay the course and keep investing whatever money you have. Your first $100 will turn into $100,000, which makes you $4,000 every year.

Dividend stocks are only one example of passive income. When you invest in dividends, you are investing money. However, passive income can be built instead of bought.

Instead of working more hours for money to invest, why not build an income stream? You can  build a business and then funnel that money into more income producing assets.

How can you make passive income?

Passive income can be made by buying dividend stocks and real estate. You can build passive income sources by building websites, YouTube channels, and affiliate marketing.The best strategy is to build an income source and then purchase additional assets.

Dividend stocks

Dividend stocks make you rich because they can increase your cash flow. It doesn’t matter much about stock market volatility, your dividends are typically paid on time. Use your dividend income to purchase more income.

For example, AT&T has been paying a 7% yield lately. I could invest $10,000 into AT&T and know that I will receive $700 every year in income. Even better, AT&T has a history of increasing their dividend over the last 35 years. 

However, it is important to choose your dividend stocks wisely. Choosing individual stocks has always been risky, but it is especially true for dividend investors. Companies can suspend their dividend which means you would lose your passive income.

Real Estate

Real estate has made more millionaires than any other investment. The strategy is fairly straightforward, provide a place for people to stay and receive rent. In addition to cash flow, you will also see appreciation in home price and equity that is paid for by your tenant.

To make matters even more interesting, you can use bank loans to fund the majority of your investment. Therefore, the money you can receive has immense leverage.

For example, maybe you are looking at buying a property for $100,000. You might need a 20% down payment, $8,000 for renovation, and maybe $1,000 for escrow. Your total out-of-pocket cost would be $29,000.

Once rented out, you might be able to find someone willing to pay $1,200 in rent. Annually, you would bring in $14,400.

Obviously, a lot of this money would go to pay off the mortgage and other expenses. However, what if the cost of expenses and mortgage was only $1,000. You would be receiving $200 per month in cash flow which you could invest elsewhere.

At the end of 30 years, you have a property which is paying you monthly and is paid off in full.

Websites

There are many ways to make passive income with websites. The easiest way to make income is through ad revenue by showing display ads on your website. Alternatively, you can use affiliate marketing to supplement your blog’s income.

Ad revenue is paid per thousand views or revenue per mille (RPM). On average, you are paid a $15 RPM. Therefore, bringing your website to 100,000 pageviews would result in $1,500. 

Websites have very low operating costs, so the majority is profit. However, building websites takes some knowledge and experience. Once your website is built, it takes very little upkeep to maintain.

YouTube Channels

YouTube channels are completely free to create. All you need to get started is a YouTube account and an iPhone. Again, you are paid by ad revenue and affiliate marketing.

You want to pick a niche or a topic of interest to base YouTube videos on. Provide content which is relevant to that audience and build your audience. The more people watching your videos, the more money you will learn from ads and affiliate offers.

Affiliate Marketing

Affiliate marketing is where a marketer sells a product for a commission. You can either be the person with the product or the one selling the product. However, you can make more money by owning a good product with many affiliates.

Creating your own product can build thousands of dollars in passive income in a very short amount of time. However, you need a really good product at a really good price.

Let’s say you create a product and sell it for $50. You can give an affiliate commission of 50%. Therefore, you get $25 and so does your affiliate every time a product is sold.

You only need one or two good affiliate marketers to make a good profit. Let’s say you find one marketer who is able to generate 100 sales of your product every month. That one person is now making you $2,500 every single month.

Click to Tweet! Please Share!Click To Tweet

Summary: Can passive income make you rich?

As you can see, passive income can make you rich. Passive income is typically small to start with, but has the potential to build up to a large sum. Take advantage of compounding interest, invest your profits to buy more income.

The best sources of passive income are dividend stocks, real estate, websites, YouTube channels, and affiliate marketing. You can purchase dividend stocks and real estate. you can either buy websites if you know what you’re doing. Alternatively, you can build sources of passive income through websites, YouTube channels, and affiliate marketing.

Most importantly, stay consistent. Continue to invest every single month and it will be almost impossible to build wealth.

John is the founder of TightFist Finance and an expert in the field of personal finance. John has studied personal finance for over 10 years and has used his knowledge to pay down debt, grow his investment portfolio, and launch a financial based business. He is committed to sharing content related to personal finance based on his experience in his career, investing, and path towards reaching financial independence.