Finding Financial Independence
Financial Independence has become the goal for many who struggle with the overwhelming task of funding a long term retirement strategy that is so far away. In a world where jobs are constantly changing, skills need continual updating and stability is hard to find, many are rethinking how retirement is viewed. Instead of thinking of retirement as a destination 30 or 40 years from now that must be funded with a huge cash reserve, thinking of creating financial independence through passive income streams feels more attainable.
If financial independence is a strategy that will provide ongoing income there are several things that must be accomplished to make this a reality. Here are some tips and ideas on creating passive income.
What Is Passive Income
Creating a passive income stream, looks at investment opportunities through the lens of providing ongoing income, rather than accumulating large amounts of investments that will be withdrawn at some point in the future. The traditional passive income streams were social security and pension plans which would pay a set amount of money each month until you die. With these passive income streams additional work was not required and the funds would last until you died, ensuring you would never outlive the money.
Today those traditional passive income streams like pensions cannot be relied on. This has left workers with 401ks and IRAs as the funding options for retirement. These are great options, but with jobs changing and the average worker going through a dozen or more jobs in a career, even this is not enough to provide ongoing security. This has required Millennials to be more creative when they think about savings, investing and preparing for an uncertain future.
Having an investment portfolio that can provide a monthly income stream, a business that produces ongoing income, rental property, part time work or freelancing are all options for ongoing income. In the beginning these options require work and forethought but over time they can produce a passive income stream that can provide much higher levels of security.
Keys to Building Passive Income
Start Early
As with all investments the more time a plan has to work and develop the better it will work for you. If you have a hobby you are passionate about that you can build into a viable business, starting now will give you decades to build the business into an operation that requires less of your time and attention. This income can then provide as a respite if you have employment gaps throughout your career. With both nontraditional and traditional investments alike, starting early will reap the highest level of benefits and income.
Watch Spending
Living frugally became a buzzword a few years back as it became more mainstream. Living within your means will always provide money that can be invested in your future, instead of paying for yesterday’s spending. The other advantage to frugal living is that you need less passive income to maintain your quality of life. As your income increases throughout your career, keeping your spending in tact will be rewarded with more investments that can be directed toward passive income opportunities.
Keep Your Eyes Open for Opportunities
Passive income requires creativity with investments. It means thinking in terms of multiple streams of income and investment options that will grow during your working years and then produce income when you need it. Many opportunities do not produce passive income immediately, but will over time.
When you look at adding activities to your life that are more fulfilling, investment opportunities will present themselves. This might be a chance to earn a second income doing something you love. It might mean nontraditional ways of earning money. Thinking outside the box is the key. One friend buys fireworks when they really inexpensive, before the season and then sells them during the holidays where fireworks are popular (4th of July and New Year’s being the two best holidays). This gives him a boost of several thousand dollars a few times a year. He then takes those earnings and invests them to build a portfolio of passive income that he can later use. Income and investment opportunities are everywhere when you are looking for them.
Be Patient
While we get used to instant gratification, the best things in life take both our time and energy. They do not always work out like we planned but they are worth our time and effort because in the end they pay off. Investments are the same way. When looking for passive income streams be willing to look at the long term benefits and dedicate the time necessary to grow your investments in a strategic way.
It is a lot less overwhelming to think in terms of establishing an income stream of $3,000 to $4,000 a month, than to think in terms of needing to save a million dollars for a comfortable retirement. Changing the way you look at investments might be just what you need to get started on your way to financial independence.
Learn more about our Retirement Planning services.
Related Reading:
Four Things Entrepreneurs Can do Now to Save for Retirement
YOLO (You Only Live Once) so you Need a Retirement Goal
Your 401K Program: A Little Savings Now Goes a Long Way
How Much Money do you Need for Retirement These Days?
The Benefits of Saving Early for Retirement
Advantages of Participating in Your Workplace Retirement Plan
LFS-1094765-011215