Generating wealth over a period of time normally takes diligent saving and hard work. To generate an income to give yourself the opportunity to save and invest a lot of money takes active employment. You go to work and are paid for every hour you work or a flat salary.
But what if you don’t want to have to work to build wealth? Do you always have to trade your time for money? Is there a way to passively generate wealth while you sleep (or go on vacation)?
How to Build Wealth in Your Sleep
Passive income is not easy to achieve. You can’t simply decide you want a big chunk of your income to come passively and have it happen. There is a lot of work that is put in on the front end for you to be able to one day have passive income, but this type of income is certainly achievable.
Build a Business
Right now you are trading your time for someone else’s money. You work, they pay you. If you can build a business up to the point where your customers are paying enough revenue to pay for someone else to do the work – your employees – plus a tidy profit, then you are building passive income. You can manage the employees directly, but that means you are still actively involved in the business. A better choice is to build a system the trains up managers to run the business and manage the employees for you, all while still earning you a profit.
Owning a business changes the equation from Your Time = Their Money to Their Money = Your Profit + Employee’s Time.
If you don’t have the time to start and excel with a business, you can always invest in other businesses and reap a profit as an investor. The safest way to accomplish this is to screen for low volatility, high dividend-yield stocks. This isn’t a risk-free method of building wealth while you sleep, but it can be seen as the easier option. You take some of your extra cash, invest it in a company with a healthy dividend payment and history of raising dividends, and you receive the payments throughout the year. It’s easy, but the company could go out of business or cut the dividend.
The Process of Passive WealthThese are just two simple examples of building up something that will generate income without your input. The key to passive wealth is to do work once and get paid many times after that work. You could spend 6 months putting together an eBook with an audio and video series to sell on your website. That’s a big investment of your time, but if you can sell the product for 6 years without having to do any significant work, that’s a winning strategy.
Don’t Forget Maintenance
You may have to do maintenance on your passive income from time to time. There are few things in life that are 100% “set it and forget it”. If you run a business, you need to receive reports from your employees or managers on how things are going lest they run it into the ground. You need to check in on your investments and read annual reports to make sure no significant changes are coming to the dividend payments. Maintenance is a required part of your passive income plan, but occasionally having to do maintenance is a small price to pay for not having to work on that income the rest of the year.
Kevin Mulligan is a debt reduction champion with a passion for teaching people how to budget and stay out of debt. He’s building a personal finance freelance writing career and has written for RothIRA.com, Moolanomy, ING Direct, and many others.