3 Passive Income Strategies

Passive income can provide you with benefits that go beyond building wealth. You can attain financial freedom to retire early or live your dream life. Read on to discover effective ways to create passive income.

Key Takeaways

• Limit your liabilities and build multiple income streams by developing different assets. Your assets create infinity income, so avoid selling them.
• Instead of only focusing on stocks that go up and down, invest your money wisely with specific dividend stocks that increase annually.
• It’s hard to feel guilty about money if you’re doing something good for others. Donate a portion of your wealth for consistent returns.
• Consider diversification to take your stock portfolio to the next level and generate more wealth.
• Avoid adding to your debt. Borrow against your assets since they pay for themselves and eventually remedy any debt created.
  

Determine Whether You Have Assets or Liabilities

Before developing passive income streams, the first step is to determine whether you have assets or liabilities. The simple definition is that assets put money in your pocket, and liabilities take it out. Check your monthly bank statement to see if your investments are working for or against you. If an investment is taking money out of your account, it’s a liability. If it’s paying you and actively putting money into your account, it’s an asset.

For example, you might question whether your car is an asset, as its value depreciates over time and costs money to maintain and repair. Vehicles, including boats and recreational vehicles, are liabilities. If you have a property rental, it might be an asset, but that depends on your bank account. Is the real estate property cash flow positive? If it is, then it’s an asset.

Understand the Infinity Income Types

Infinity income means it never goes away. You can continue to get paid for life with any or all of the five infinity income types:

• Rents.
• Royalties.
• Dividends.
• Interest.
• Short-term capital gains.

Once you determine whether your investment is an asset or a liability, you can focus on the type of income it provides and use it to fund your life. Securing rents and dividends is the most significant step in generating passive income. If you work on them consistently, you can achieve exceptional results.

The 3 Best Strategies To Build a Passive Income Empire

Infinity Investing’s Toby Mathis reflects on his 25 years of experience as a financial expert and shares the three best steps to take to build passive income for lifelong wealth. He bases his advice on his experiences as a tax attorney for high-profile and high-earning individuals. His firm assists over 10,000 clients annually, and the passive income-generating strategies across the clients are consistent. If you follow these steps and put in the work, you could become very wealthy.

1. Live Within Your Means With the 70/30 Rule

Living within your means can be challenging, but it is a guaranteed way to get your finances in order. Apply the 70/30 rule to your lifestyle. Set yourself up for financial success by either working hard to increase your earnings or reduce your expenses. Take 70% of your income, and live off that.

If you can survive on less than that amount, that’s even better since you can reinvest the rest. Reassess your spending habits, and don’t buy things you can’t afford. Avoid spending more than 70% of your income so you gain financial freedom, then take the other 30% and split it three ways:

Give 10% Away

Based on experience, Toby noted the consistent trends of positive returns when people donate their money. Donating money often goes under the radar, but it’s still important, even if nobody talks about it. If you can afford to donate 10% of your income, do it. If it’s not possible for you to donate money or you can’t afford it, donate your time instead. 

Whether you believe in it or not, karma is real. When you donate your money or time, you’ll meet other good people doing the same thing, which can open up chances to make more money through your connections. Surround yourself with people who are givers, not takers, and see your money returned to you exponentially.

Use 10% To Pay Down Personal Debt

Set aside 10% of your income to make extra payments on your debt. For example, apply the full amount if you have a $50 minimum monthly credit card payment but can afford $300. You should get out of debt and work to pay down significant amounts to avoid high interest rates. Once you pay off your debt, you can add this 10% to your investments.

Invest the Other 10%

Ignore the hype of certain stocks, and avoid buying into growth companies that don’t make money. These companies get crushed when there’s a downturn in the stock market. Instead, buy stock in items or companies you use or believe in. Keep investing in these stocks, and your passive income will increase over time.

2. Diversify Your Assets by Following the 30/30/30/10 Rule

You can make multiple income streams by diversifying your assets and investing with intention. Follow these stock tips, and avoid getting hurt by market downturns:

Invest 30% Into Income-Producing Stocks

Investing in income-producing stocks can easily provide you with passive income. Take 30% of your investable income and invest in companies with dividend stocks. These companies pay shareholders a portion of their earnings simply for owning a piece of the company, resulting in income-producing stocks.

Invest in dividend aristocrats and kings, an exclusive group of stocks that continuously increase their dividends every year. Dividend aristocrats have consistently paid dividends for at least 25 consecutive years. Examples include Chevron, Clorox, and Cintas. Dividend kings, such as Procter & Gamble, Coca-Cola, and 3M, have done this for 50 years or more.

Invest 30% Into Real Estate Investment Trusts (REITs)

REITs are an excellent way to create passive income. Like stocks, you can invest 30% of your investable income into REITs, which are large-scale, income-producing real estate. Typically, REITs pay out at least 100% of their taxable income to shareholders each year. It’s easy to determine how much you can make with REITs by looking at their yields. They increase their dividend yearly, eventually paying you more than you paid for your initial investment.

Invest 30% Into Managed Money

Invest 30% of your investable income into managed money, meaning someone else controls the investment. Examples of this include mirroring someone’s stock portfolio, taking a look at Berkshire Hathaway and buying what they buy, or hiring a money manager, paying them 1%, and allowing them to put your money into different assets. This managed-money investment is ideal once you have earned $100,000 or more from income-producing stocks and REITs.

Invest 10% Into Cash or Cash Equivalents

Set aside 10% of your investable income into an emergency fund you can easily tap into and access whenever needed. You can purchase gold or cryptocurrency as cash equivalents to an emergency fund. However, investing this income as cash is best for quicker access during unexpected financial events. You could also consider placing this income into a checking or savings account.

3. Leverage Your Assets Instead of Selling Them

Whatever you do, don’t sell your assets. Instead, leverage your assets to buy more assets. With this process, make sure you aren’t paying for your new assets with your money — use someone else’s money. For example, if you have a rental property and your rental income pays for the mortgage and provides you with extra income, you can use the extra income from your tenant’s rent to pay for things instead of going into debt.

Additionally, you could borrow against your stock portfolio, also known as a securities-backed line of credit. This process allows you to liquidate your portfolio to access quick cash. It is best to borrow at least 50% of your portfolio value so your dividend income can repay your debt. Fortunately, the interest rate is fairly low and tax-free, putting you in a tax-advantaged position. It’s 100% legal, and it’s what rich people do.

Financial Education Is an Invaluable Asset

Enroll in Infinity Investing’s free monthly membership, and learn how to start your investing journey. They base their advice on over 25 years of experience observing wealthy people making their money work for them. Sign up for Infinity Investing’s weekly stock trading tips, or upgrade to the 360 Pro membership for exclusive access to real estate properties and a professional portfolio assessment. Their financial experts can show you stock ratings and guide you in choosing the right stocks to invest in.

Applying these passive income strategies can help you achieve financial stability and security. You can also generate passive income to fund your lifelong wealth when you have income-producing assets. Reduce your liabilities, diversify your investment portfolio, and leverage your assets so you can become financially free.