Make Your Money Work for You - The power of passive income

Congratulations! You've made it to final step of my 6 step plan. You've set yourself far apart from the average person drowning in debt they'll never pay back without a plan for retirement. There's one powerful concept you must realize in order to become financially free.

No matter how much money you make in your current job, without passive income the minute you stop working you are broke.

It doesn't matter if you're a celebrity, doctor, lawyer or pro athlete... when you lose your job the money dries up and you're left with the bills for your expensive mortgage, car and everything else. Of course, you'll prevent credit card debt and give yourself time to find another job with an emergency fund, but in the end you're still shackled to a job.

The only way to break free and end your anxiety over losing your job is by building passive income. The simplest definition of passive income an investment that earns money without you being actively involved. While you're vacationing in Tahiti, your money is hard at work for you. When you decide to have a lazy Sunday and not leave the house all day, your money is still hard at work for you. It's how the rich build wealth without working longer and longer hours.

The concept is simple. If you match your current salary in passive income, then why are you working? The reason is because you enjoy your job. How profoundly does that change your outlook on life? Your goal should be to build passive income to a level that allows you the freedom to work when you want.

There are three main ways you can build your passive income:
  1. Rental income from real estate
  2. Dividends from stocks
  3. Income from a business you own
Obviously all of these require hard work on your part, but the beauty is once they're set up you just manage your money. Even if you leave your money is still working hard for you. If you decide to backpack Europe for a year you can hire a property manager or hand off control of your business to a manager. How do you think your boss would respond to such a request in your current job?

Out of all three methods, the easiest to start is dividend investing. It's a good way to get involved in the stock market. The basic premise is you buy partial ownership of a company in the form of stocks and in return the company pays you part of their earnings in the form of dividends. To get started you need to open a brokerage account with a company like Zecco. I use them for my non-retirement account because they have a free dividend reinvestment plan (DRIP) and give you free trades once your account reaches a certain value. Not to mention they're cheap at $4.50 a trade.

DRIPs allow you to capture the power of compound interest. For example, say you own shares in Proctor & Gamble and they pay you a $5 dividend. If shares cost $50 a piece you won't be able to invest that $5 until you get enough to buy a complete share. A DRIP will buy a partial share and continue to reinvest your money until you're ready to live off the dividends.

Thousands of books have been written about these topics. My hope is I've changed your way of thinking and started you on a path to financial freedom. Subscribe for free updates and I'll share more information on passive income and the other topics in my 6 step plan.

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