Last week we talked about defining wealth in terms of long you can go without a job before running out of money. With this definition of wealth we can increase our wealth from two sides. One side is to reduce our spending the other is to increase our savings and our income that isn’t tied to work.
Money that you don’t have to work for is usually called passive income. This includes interest and other types of income that you get more or less automatically. Here is a list of some passive income sources:
- Interest income – Money that the bank pays you for the use of your money.
- Rental income – Real estate lease or other sources of income in exchange for the use of property.
- Royalties – Money for the use of intellectual property.
- Dividends – Profit distribution to owners of a company.
If you can increase your income from these types of sources it reduces your reliance on your job which (in our definition) makes you more wealth because it moves you closer to financial independence.
There are a lot of small things you can do to increase your passive income. For example, if you have a savings account that is currently earning less than 4%, consider putting that money in a bank with a higher interest rate. If you have an average balance of $5,000 per year this will give you an additional $200 per year in interest.
That may not seem like a lot of money, but if you consistently look for ways to maximize your passive income, it shouldn’t take too long to get to the point that one of your bills is paid each month from passive income. The beauty of this type of thinking is that it encourages you to not only increase your passive income, but also decrease your expenses. Instead of just trying to make more money you are striving to have more freedom by working from both ends simultaneously.
Are any of Productivity501’s readers actively trying to do this? If so, what steps have you taken to increase your passive income?
Good management of your finances can have one of the biggest impacts on your productivity because it determines how efficient you convert your time into money into the things you need. On Wednesdays we are discussing the financial aspect of productivity. Watch for more financial posts in the future.