Even though this site is all about my million dollar net worth journey, I personally consider passive/alternative income to be more important. Why? As I’ve mentioned before, I would consider myself financially free the day that I no longer need my 9-5 job to cover our expenses. Imagine the day that you don’t “need” to work to pay the bills. That, my friends, is what I think wealth accumulation is all about.
Now some people really love their jobs and wouldn’t consider leaving until they’re old and can’t do it anymore. More power to them as they are truly lucky to have found their passion.
Me? I “like” my job but it’s not my life calling. If I had enough in alternative income streams to comfortably support my family, I would seriously consider dropping my career and pursue my passions full time.
What are some ways of obtaining passive/alternative income?
I’m a big fan of strong dividend paying companies (like the ones listed in the Claymore ETF). These companies have a consistent track record of paying and increasing their dividends over the years. Not only do I like the annual raises, I really like that dividends are taxed favorably.
The only issue with this method of alternative income is that you need big capital (or time) to get enough in dividends to make it worth while. For example, if you average a 3% dividend in your portfolio, in order to get $10,000 / yr in dividend payments, you would need a $333,333 portfolio.
Of course the beauty of strong dividend paying companies is that they are known to increase their payments at least once a year. Increased dividend payouts from these companies usually result in higher stock prices. Providing that you start investing in dividends early, then with time, the dividends will become increasingly more significant.
Don’t have a lot of cash to invest at once? Look into SPP and DRIPs that companies like BNS and ENB offer. That will enable you to purchase as little as one stock at a time with the dividends reinvested in partial shares.
This is another income stream that can really pay off and give you great return for your invested money (b/c of leverage) if you do it right. Owning rentals is not really passive unless you hire a property manager.
What I like about rentals is that you get monthly cash flow (hopefully) along with capital appreciation. In addition to this, there are huge tax write offs. The real down side of this is dealing with tenants which can be a job in itself. If the cash flow allows, hiring a property manager can really reduce the workload.
Another way to increase your alternative income is to do something that you are passionate about. No matter what you are passionate about, there is usually a business opportunity somewhere. Whether it’s photography, a specific sport, yoga, cooking, writing or creating websites, do what you love and you’ll be surprised at how money will follow passion.
It’s pretty clear that I’m enthusiastic about personal finance and investing. Whether it’s talking, blogging, saving or investing, I really enjoy it. There’s no way that I could keep up on the posting schedule on MDJ if I didn’t enjoy the topic so much.
As the story goes, there are 3 ways to increase your savings:
- Spend Less than You Earn
- Make More Money
- Do Both
I’m partial to option number 3.
So ask yourself, what are you passionate about?