How to Generate Passive Income

There’s an old saying:   If your outgo exceeds your income, your upkeep will be your downfall.  There are two ways to correct such a situation:  Less outgo or more income. There’s another old saying:  a part of all you earn is yours to keep.  Take a part (you decide what part, but some suggest a tenth) of your income and put it aside.  Then figure out how to spend the rest.  If you don’t take that first part, you won’t have any seed for the future.  Speaking of seed, there is a law of the harvest that says you reap what you sow.  Jesus said “Give and it shall be given unto you”.  You might want to consider giving ten percent to a charity of your choice, When you begin to work, your income comes from 100% of your own efforts.  You earn wages.  As you begin keeping part of what you earn, you can the earn profits.  Everybody knows that profits are better than wages.  Why?  Wages cease when you cease working.  Profits can continue with a life of their own.  Profits generate more profits. There are basically two ways to generate profits:  people working for you or money working for you.  Let’s examine the latter for this article. When you put money to work, you are investing or saving.  This follows the risk/reward cycle.

Unfortunately, there is no such button, but you can come close with careful planning.  Let’s say you want monthly income with no work.  With a sufficient sum of capital, you can produce that income stream. The table below shows the amount you would need to have on deposit earning the indicated interest in order to receive $1 each month.  Multiply the savings by the amount of income you want. For Example, if you think you can achieve a rate of return on savings of 6%, and you would like an income of $3,000 per month, the required amount of savings would be 3,000 x $200 = $600,000.

Chart showing how much is needed at various interest rates to generate $1 each month

Generating $1 each month

To generate a passive income of $5,000 each month at an average interest of 3% would take two million dollars ($400 times 5000) on deposit.  You can do the math with your own desired monthly income and assumed interest rate.

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