Passive Income means that you don’t have to actively work for it. In other words, these are not your earnings from primary job but from investments such as Real Estate, Bonds, Stock dividends etc. It is a regular income that doesn’t require much effort.
I first heard about Passive income in the book called Rich Dad, Poor Dad (highly recommended for starters). I’m not a Robert Kiyosaki fan by any means. Perhaps I was in the beginning as his books gave me enough motivation to map out a definite plan for financial freedom. We all need different level of teachers, mentors at various stages in our lives.
Since I’m speaking of Rich Dad, Poor Dad book. It is worth mentioning how I first heard about it. Brinda and I had taken a Caribbean Cruise about 7-8 year ago. As usual, there are formal nights on the ship where you have fancy dinners and share a large table with other fellow passengers. It does seem awkward in the beginning (I must admit) but it doesn’t take long to open up to the strangers. Luckily one of the couples had read the book and shared their plans of building a portfolio of rental properties in the US. It came as a blessing at the right time as I was also interested in the same and needed some material to work with.
This is the beauty of getaways or mini vacations. These allow us to think clearly or about something creative and exciting as we’re away from our usual Hole. We get to meet new people and learn from them.
Anyway, back to the subject of Passive Income. Once we have built enough assets, these should be able to generate regular income for all of our financial needs. It includes our monthly maintenance expenses and future ones like kids education, unforeseen medical bills etc. Ideally you should have paid off (or most of it) your mortgage, cars and any other debt by the time you leave your full time job. I know some of you might be shocked to hear this but isn’t what the retirement years should look like?
Now there’s a big debate on what an Ideal Portfolio should consist of. Everybody seems to have a preference for a specific asset class and some prefer to have a combination of all (Real estate, Bank Deposits, Bonds and Stocks). In my opinion, the portfolio decision should also depend on your expertise and comfort level. For example, if Warren Buffet were to build a passive income portfolio, he would do it using Stocks only. He wouldn’t venture into Real estate, Gold or commodities. On the other hand, I have met many folks who can do an excellent job using Real Estate alone.
The point is: We shouldn’t get hung up on a particular asset class, instead we should start thinking of passive income as early as possible, guidance will come!!