Whatever your circumstances and goals, passive income can play a role in your personal finances. Although many people dismiss passive income as a fad or get-rich-quick scheme, it is in fact a powerful, long-term tool that can have a positive impact on almost any financial situation. Indeed, most of the real-life passive income success stories you’ll find are not necessarily about people who have used it to amass huge fortunes, but about those who have leveraged it to achieve financial goals – often modest in scope – on their own terms.
Regardless of your financial situation, passive income has something to offer. Some of its biggest benefits include the following:
1. Financial freedom
Passive income is vital for financial freedom, and the most important thing to note here is that “financial freedom” will mean different things to different people. Although it could mean having sufficient funds to live debt free, develop an emergency fund, set aside enough to retire comfortably or meet other long-term goals, or stop living from paycheck to paycheck, your own concept of financial freedom might be something else entirely. Regardless of how you define it, experts agree that passive income plays a vital role in achieving financial freedom and independence.
2. Stability
As the COVID-19 pandemic has demonstrated all too clearly, unforeseen circumstances can arise at any time. And while it’s impossible to be fully prepared for every eventuality, having one or more sources of passive income can provide a certain amount of financial stability, to say nothing of a much-needed financial safety net. Additionally, passive income offers an important way to diversify your sources of income, so that even if one of your regular income streams (such as your job) is affected by adverse circumstances, you can still have some income.
3. Location independence
Because a significant majority of passive income streams operate online or digitally, including blogs, online courses, ebooks, and investments, passive income can allow you to be location independent. In other words, if you’re able to get all or most of your income from passive sources, you can be based wherever you want, whether that be a desirable location like a tropical beach town or somewhere near family or with a low cost of living.
4. Reduced stress and anxiety
Worries about money are common, but did you know just how common? According to a recent CreditWise survey from Capital One, a remarkable 73 percent of Americans cite finances as their leading cause of stress. This is particularly concerning given that stress has been consistently linked to a wide variety of health issues, including depression, heart disease, and insomnia. Furthermore, financial stress can have a negative impact on personal relationships, as shown in a Kansas State University study that revealed that anxiety about finances can increase chances of divorce. It therefore seems like any strategy that can help alleviate financial anxiety is worth pursuing, and for many people, passive income is precisely that.
5. Security for the future
With rent or mortgage payments, car payments, necessary daily expenses, and other immediate financial obligations, it can be difficult for many people to think about the future, let alone save money for it. But, by bringing in additional income over the long term that you don’t necessarily need to cover such expenses, passive income can often be set aside for future eventualities such as retirement or purchasing a home. In this way, it serves as a kind of automatic savings tool for those who may have difficulty setting aside an equivalent amount from their regular income.
6. More time
Because it can take work to establish a passive income stream, it has sometimes been suggested that passive income is not actually passive. However, once such a stream is established (e.g., via an ebook), it does not generally require the same investment of time that a regular job does. Such a reduction in time to generate income not only lies at the heart of what it means for income to be passive, but also constitutes passive income’s primary benefit. While you may not be able to earn enough from passive income to stop working entirely, in many cases, it can offer you more flexibility and free up at least some of the time you might otherwise have spent at a job or side hustle. This can allow you to spend more time with family and friends, pursue passions or hobbies, or simply have the chance to slow down and relax more often.