Most people focus only on and only know about active income. Active income involves trading your time for money. While simultaneously, active income is taxed at the highest rate out of any income type or source.
Yes, active income is the most heavily taxed type of income.
Why keep hustling at earning active income, only to have such a large portion taxed? The focus should be on generating and building passive income until it equals or surpasses our active income, which is what we’re highlighting in this blog post.
School Doesn’t Prepare Us
Unfortunately, our school system grooms us to become cogs in the active income-generating and tax siphoning cycle. We’re taught to work and trade time for income.
Even degreed doctors and attorneys who land high-paying salaries are doomed to trade their time for money for the next 35+ years. That’s the big thing they’ve been taught - to work, earn their $16,000 paycheck each month, pay about 40% of it in taxes, and be left with $9,600 a month in earned income.
While that’s still a high income, pay attention to the tax value. How much do you pay in taxes?
In comparison, a person who earns $16,000 a month in passive income (cash flow from rental properties or other real estate), only $2,300 would be paid in taxes. Which means they can take home $12,800 each month.
You Still Need Active Income
To be clear, you need to earn and save active income so that you can invest to create passive income. Maybe your goal is to work only 4 hours a week, or perhaps that sounds boring. Either way, the goal is to accumulate enough savings to invest and then continue to invest until the passive income earns matches or exceeds your active income.
Financial Peace of Mind
It used to be that you went to college, got a good job with a pension, and rode that wave until the day you retired. Things aren’t like that anymore and we’re 100% individually responsible for putting away savings SO THAT we can retire.
This may resonate with you, which is probably why you’re here right now. Most likely, you’re on the hunt for a tried-and-true method of achieving financial peace of mind. In other words, you’re interested in building multiple streams of income to cover your living expenses, whether or not you work daily.
One way of achieving the “mailbox money” of your dreams is to have multiple properties generating passive income streams. This allows you to design your time and your life instead of fearing layoffs or being concerned about having enough money when you retire.
Why Real Estate Passive Income?
Think about how you dream of spending your extra time. If you’ve wished for more time freedom to spend additional time with your kids and family, give back to your community, or to see the world, passive income is the ticket!
You may already know that it is possible to generate passive income from the stock market. You may also know that it’s a roller coaster ride, and you would rather avoid that drama.
Real estate investing creates reliable income streams because you’re investing in stable assets. If you make $200,000 per year in income, the goal should also be to generate $200,000 in passive income from your investments.
Passive Income Ingredients
Now that you’re aware of passive income and its vital role in becoming financially free, how do you get started generating passive income?
Focus on building your passive income until it matches your active income.
Invest in things that increase in value and are physically tangible.
Only invest in assets that can’t be disrupted.
Number 3 above is one of the key reasons you should invest in real estate. Multifamily properties have withstood the test of time - people always need a place to live, no matter the climate, the economy, or social status.
Summary
If you’re ready to find financial peace of mind, you’ve got to go all-in on the passive income game.
Invest in yourself, grow your active income and begin saving toward buying assets that increase in value.
You can do it and we’re here to help. If you’re ready to begin building passive income for retirement so you can find financial freedom, join our Investor Club.
This work by Annie Dickerson is licensed under CC BY-NC-SA 4.0