Passive income is the revenue earned without active involvement in work, relying on productive assets instead. It means one must initially have income, which is then used to acquire assets that can generate returns. Examples of passive income include productive assets and investment assets.
There are several significant benefits to having passive income. Here are the advantages of having passive income:
Clear Financial Goals
Having passive income accelerates the achievement of your financial goals, allowing you to save time in realizing them.
Financial Stability
Before attaining financial freedom, achieving financial stability is essential. If your finances are stable, you can comfortably allocate funds to various investment portfolios, enabling you to reap optimal investment returns and manage investment risks according to your risk profile. Financial stability can be achieved more quickly by having two sources of income: active and passive.
Income Diversity
Passive income helps meet living expenses, even in the face of rising prices due to inflation. Depending solely on one source of income may disrupt your monthly cash flow when there is an increase in monthly expenditures.
Freedom to Pursue Passions
For those primarily reliant on active income, there is limited flexibility to engage in activities aligned with their passion. Having passive income that adequately covers your needs provides more choices to pursue activities aligned with your passion.
Once you have passive income, are there ways to enhance it? Strategies to boost passive income include:
Budgeting to save and invest more
Increasing active income to expand investment capital