I think for many of us, the idea of waking up a little bit richer seems rather enticing. Or, kicking back poolside, cocktail in hand knowing that our bank account is increasing minute-by-minute. Whilst these seem like dream scenarios, earning passive income is possible. But, and yes, there’s always a but, it’s going to take a bit of time and effort to get there.
So what’s all the fuss about?
I often talk about the ‘hamster wheel effect’ – the feeling of going around and around and never really getting anywhere both in life and financially. And with this comes common feelings and frustrations including exhaustion, feeling too busy and feeling like you’re being left behind. When I meet with clients, I ask them, what does financial freedom look like to you? For some, it’s being able to work part-time or focus their energy into charity work or passion projects. It might be travelling for three months of the year or being mortgage-free.
And passive income, how does it all work?
There are passive income techniques that you can implement to break the cycle and it’s these income streams that can provide you with financial freedom – the freedom for you to do what you want, focus your energy on things in your life that you like and provide you with flexibility. However, financial freedom can only be achieved when your passive income can either replace your current earned income, or cover your cost of living so that your earned income is no longer a necessity. It’s important to note that this isn’t a quick fix. If you’re envisioning making hundreds of thousands overnight, then you’ve got the wrong idea. This all fits into a long-term strategy, where you’ll need to invest in time, energy and yourself. So what can you do to prepare yourself for the passive income life?
Savings are a sure-fire way to passive income streams
You’ve got to have money to make money, right? Before commencing anything, it’s important to sit down and work out exactly what you need in order to achieve your definition of ‘financial freedom’ – there’s a good chance you’re going to have to invest to make back a return. So where is this investment going to come from? You might be lucky and have some spare cash set aside, or a good chunk of savings. But, you might have to look at alternative ways to raise the funds and this might be by parting with a percentage of your salary each month or committing that all bonuses go straight into a savings account. However you get there, make sure you stick to your budget and follow your strategy and plan.
Get your head around investing
This might seem like an obvious one, but it’s certainly the most accessible way to start earning passive income. The catch? As we’ve just discussed, you have to have something to invest in the first place. Plus, you know what you’re willing to invest and be clear around return on investment expectations. There is a range of investment options out there, including setting up investment portfolios made up of shares, managed funds, bonds and term deposits that you can consider. Working closely with a financial adviser can point you in the right direction.
Get into the practice of understanding property
Ah, the Australian property market, a sometimes precarious and volatile place, but also a fantastic opportunity to build your wealth (as long as you follow the rules). Much like an investment portfolio, there’s an opportunity to build a healthy property portfolio, which can help you along the road to financial freedom. There are a variety of ways in which you can enter the market including purchasing properties to be rented out or getting your hands on something worth renovating – then doing the old ‘flip and sell’. But be warned, when it comes to the real estate market, it’s imperative to do your research and be prepared. As I’ve previously discussed, it’s getting harder to get a loan, even for investors. So before embarking on a potential investment property journey, take the time to speak with a professional broker and adviser.
Prepare for the passive income life
With a little bit of hard work and sacrifice in the short-term, you can make some serious gains in the long-term and actually enjoy a life funded by passive income. Before you know it, your biggest decisions will revolve around how you feel like spending your day. If you’re keen to see how we’ve helped one of our clients achieve this, then you can read our case study. Alternatively, if you’re ready to start your financial freedom journey, then speak with us today.