Why Passive Streams Of Income Are So Important

Learning about passive income forever changed my working life, and the way I think about money. We’re taught in school from the time we are young to go out and get a good job so we can work for someone else for our whole lives. No one ever teaches us how to be entrepreneurs and investors.

I love Robert Kiyosaki’s books (he’s the author of “Rich Dad, Poor Dad”) because he points out that there are virtually no classes in the public education system regarding how to make and manage money. If there had been classes like this, I would have loved them, because I’ve always been an entrepreneurial person. I also would have learned about passive income a lot sooner in my life, which would have changed the way I made a living in my 20’s.

What exactly is passive income?

Passive income is income that you work for once, but it continues to pay you again and again off into the future. Kiyosaki defines linear income, on the other hand, as trading your time for money, or wages. You only get paid while you are working. The minute you stop working, your income stops.

Contrary to what you might believe, wealthy people do not necessarily have high paying jobs. Kiyosaki explains that in reality, wealthy people are simply exceptionally good at converting their earned, or linear income into passive income. Wealthy people understand the simple principle that every dollar you earn has the potential to work for you to make you more money. By and large, most wealthy people don’t run out and buy expensive cars and flat screen televisions. Instead, they invest their money in assets that will pay them passive income.

You can find examples of passive income everywhere – paper assets like stocks and bonds that pay you dividends, real estate investment properties that pay you in the form of rent from tenants, and businesses that give you ongoing profits.

Tax benefits of passive income

The tax code is set up in a way that benefits business owners and penalizes employees. This is unfair, but true. Business owners can write off more expenses than employees as they build their business. So basically, a business owner can spend money on building a business (an asset that will pay them passive income over and over again) and then write those expenses off, in effect giving themselves less taxable income for that year. It’s brilliant, and it’s a lot more complicated than that, but getting into more specifics would be outside the scope of this blog post.

The bottom line with passive income?

I’d rather work my tail off for a relatively short period of time and build up a lot of passive income than rely on the retirement plan of the baby boomer generation, which is to work until you’re 65 and hope you have enough money invested to live on in retirement.

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