Wednesday, July 18, 2012

Why "Passive" Income?

We constantly read and hear that passive income is best. But what exactly is passive income, and why is it so important?

Investopedia defines passive income as "earnings an individual derives from an enterprise in which he or she is not actively involved." Wikipedia calls it "income received on a regular basis, with little effort required to maintain it." Author and speaker Robert Kiyosaki speaks of the need for people to be able to support themselves through passive income generated through systems such as real estate and business ownership. Simply put, passive income is when your money works for you.

Most people work for money. We go to a job, and we get paid after Uncle Sam takes his share. Then we get to pay our bills. And finally we get to keep whatever is left. Now think of a big corporation, the ultimate passive income machine. The corporation invests its money, and sits back while lots of good people work all day to generate income for the corporation. At the end of the day, the corporation pays its workers and pays its bills. Then Uncle Sam steps in and takes his share. The corporation gets to keep what's left - and it's passive income.

Passive income is great for many reasons, and I will be highlighting them throughout this blog. For a taste of what's to come, here are some initial reasons why every individual should be figuring out how to make generating passive income a way of life:

  • It provides a way for you to save on taxes in complete compliance with the IRS.
  • It allows a person to not need to depend on a fickle employer for his livelihood.
  • It is the only way in which a person can use his self-directed IRA (SDIRA) for investment income.
I will be spending a good bit of time explaining how a person can generate passive income for his SDIRA - traditional and/or Roth. What's a SDIRA? I have written several articles on what I believe is the best-kept secret that Wall Street has over most hard-working Americans. For homework tonight, read up:

Thanks for spending time with me. I welcome your comments.

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