Sure, you may know what passive income is. Sure, you may think the idea of not having to work for your money sounds cool. Sure, you may know that having extra money in your pocket each month is great. But do you really understand how freakishly essential passive income is in making your life awesome?
Great question! Glad you asked. Before I go any further, though, I want to be sure you understand what passive income really is. If you need more details on it, check out “The Truth About Active Income vs. Passive Income.”
Okay, back to passive income making your life awesome. Awesome in what ways? Here are 4 mind-blowing benefits of passive income that you may or may not realize are there.
Benefits of Passive Income
Just when you think you know that passive income is cool, make sure you know about these 4 benefits of having income that you don’t have to work for:
1. Extra Income
This one probably seems obvious. It’s okay; it is the more obvious of them all. But think about it this way — most people think extra income is great, no doubt, but really think about your options if you have extra (free) income.
- What if you like to travel? What if you decide that all of your passive extra income is going to be dedicated solely to your travel fund? That way, you can start traveling guilt-free because you aren’t taking from your normal accounts to support this kind of spending.
- What if you want to pay off debt? Passive income is just that much more money you can toss towards old debts, and you don’t have to worry about taking away from your eating funds to do it!
- Build up your savings accounts. Who doesn’t love doing this, and how many of us wish we could do it faster?
- Fund your liabilities. You know how liabilities are defined as things that drain your pockets and assets as things that put money in your pockets? Well, for most of us, liabilities are way more fun than assets, so why not use free money to fund those liabilities? Talk about being as smart as you can be with your spending! That fancy new car you’ve always dreamed of? Buy it now guilt-free!
- Treat your kids, family members, or loved ones to something special. Again, back to this “not spending money that should be dedicated to serious things” thing. How often do people not take time out of their schedules (and money out of their accounts to do something really special with the people they love? So often! Now you can do it without feeling guilty.
- The list could go on forever…
2. Job Security
I bet you aren’t sure where I’m going with this one. Think about it — if you get laid off or fired from your job, what is your biggest concern? Having money to eat and pay your bills, of course. What if you lose your job, for whatever reason, but you have a decent amount of passive income still coming in (because you can’t get fired from passive income)? It may not be enough to completely fund your life while you are out of work, but it sure could take some of the blow off of how fast your bills may stack up! At least having some passive income will maybe allow you to get your critical bills paid while you get back on your feet.
Another example comes from a recent conversation I had with a (non-REI) colleague who was telling me that she and her fiancé are currently investing in rental properties. She went on to explain one of their main reasons for buying those rental properties, which was that her fiancé works at a non-profit company where he spends days at a time backpacking through the woods and how more recently he has started saying that he doesn’t think his knees are going to be able to hack the job for much longer. Their thought process is that they want additional income should he have to leave that job, or should he get hurt and not be able to work, or should there be a required time between jobs for him where they would otherwise be suddenly strapped for income.
While passive income may not necessarily guarantee you keeping whatever job you have, it can add some security to any situations that may arise with that job.