The goal of an investor should be to create enough passive income to live on comfortably and to have the ability to quit their job and retire early. From a practical point of view, passive income allows a person have an income with little physical effort, but there is a financial benefit as well in that it is taxed at a lower rate than earned income. There are many legitimate ways to create this type of income which can put a person on the path of becoming their own banker.
Dividend paying stocks, rental income from real estate investments or making an investment in a family member’s start-up business are some of the most common ways people can make a passive, or unearned, income but there are a few not-so-common ways as well. A couple of ways a person can generate an unearned income is through peer-to-peer lending and writing an ebook. There are many websites that allow investors to lend money to people who need to borrow money for everything from buying a refrigerator, making a movie, to renovating a house. The money is paid back to the investor with interest which is viewed as unearned income. A person can also write an ebook, and once the book gets published, the writer can make an unearned income with each sale of the book through royalties.
Unearned income doesn’t mean a person didn’t do anything to make passive income. Unless a person inherits money, they will need to earn an income through work in order to make the investments that provide an unearned income. Once the unearned income is generated and coming in on a consistent basis, then that person can begin to start enjoying financial freedom.
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