If you have been following The Wealth Artisan then you may already know about our affinity for passive income and you may have heard of “The Passive Income Tidal Wave.” Passive income is, and will be a common topic around here because we feel so strongly about it. Passive income is one of those subjects that gets commonly overlooked by your average Joe, but don’t let that fool you! Passive income is a staple in any millionaire and billionaire portfolio. The reason you don’t hear about passive income is because it isn’t exciting, and it isn’t a make or break strategy.
People like watching Texas Hold Em’ tournaments to see people go all in, and that is the exact opposite of passive income. People think that Warren Buffet only makes money buying and selling stocks and companies. He has made a ton of money doing that, but what do you commonly see him doing as well? He always likes to get preferred stock. What is preferred stock? For Warren Buffet, it is a stock that provides a guaranteed dividend. Now, of course there are other aspects to preferred stock, but we’re only looking at this one little part. Why does one of the worlds richest men want a boring, plain, dividend? Because it is passive money.
He doesn’t have to do a single thing to get that money other than make an agreement and purchase the stock. After that, they give him money on a schedule, per their agreement. Millionaires and Billionaires use passive income because it lets them generate income, without doing much of anything. If you can get enough passive income moving in your life, it will first start out as a couple of nickels and dimes landing into your account, then it will turn into a few dollars hitting your account, then it will begin to supplement your active income (AKA Pay check), and then eventually it can equal your active income; if you do it right you can even surpass your active income (Passive Income Tidal Wave, anyone?)!
A good example of passive income is our articles experiment that we’ve been doing (we’ll include an affiliate link at the bottom of the article). It took us 4 months to earn our first $4.52! 4 months! What were we thinking? Well now we are earning $4.50 about every 1 and 3/4 weeks! That’s a 400% increase compared to back in the beginning! With that money we can then reinvest, and we will be earning interest on income that was generated passively. Essentially, we will be earning passive income on our passive income, and that is the “Passive Income Tidal Wave” that we are always talking about.
If you can generate passive income, then reinvest that passive income to generate more, and you do that long enough, you should eventually be swimming in money. Many people overlook passive income because it starts out as a small, unimpressive trickle of coins, but give it long enough and it will turn into a money generating monster. It reminds me of the story called “One Grain of Rice.” Everyone has heard the story but it is a lesson in exponentials. A young girl does a favor for the king and he agrees to pay her in rice. She requests 1 grain today, 2 grains tomorrow, 4 grains the next day, etc. By the end of the story she has a fleet of 256 elephants delivering the rice to her.
Many people are familiar with passive income in one form or another. The most common is the standard savings account. The problem with the standard savings account is the low yield. You can spend all day trying to find a high yield. We like to use Bankrate.com to try to locate the highest yields, but we also follow a number of blogs that do a lot of that foot work as well. A good one to follow is http://MyMoneyBlog.com. He has a lot of great information including a nice, short article on Ally Bank’s Certificates of Deposit Opening Process, whose CDs tend to yield higher than average rates.
This blog is run by Christians so we also must mention: Be sure to tithe, and give to those who are in need because what we’re describing is not only amazing, it is a blessing as well.
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