Passive Income Is For You _1_ by jonesprfirm


									                  Passive Income Is For You (1)
One of the keys to getting rich and creating wealth is to understand the different
ways in which income can be generated. It’s often said that the lower and
middle-class work for money whilst the rich have money work for them. The key to
wealth creation lies within this simple statement.
In the US, the Internal Revenue Service (IRS) government agency responsible for tax
collection and enforcement, categorizes income into three broad types: active
(earned) income, passive income, and portfolio income. Any money you ever make
(other than maybe winning the lottery or receiving an inheritance) will fall into
one of these income categories. In order to understand how to become rich and create
wealth it’s vital that you know how to generate multiple streams of passive income.
Passive income is income generated from a trade or business, which does not require
the earner to participate. It is often investment income (i.e. income that is not
obtained through working) but not exclusively. The central tenet of passive income
is that it can expect to continue whether you continue working or not. As you near
retirement you are most definitely seeking to replace earned income with passive,
unearned income. The secret to wealth creation earlier on in life is passive income;
positive cash-flow generated by assets that you control or own.

One of the reasons people find it difficult to make the leap from earned income to
more passive sources of income is that the entire education system is actually
pretty much designed to teach us to do a job and hence rely largely on earned
income. This works for governments as this kind of income generates large volumes of
tax but will not work for you if you’re focus is on how to become rich and wealth
building. However, to become rich and create wealth you will be required to cross
the chasm from relying on earned income to generating sources of passive income.

Real Estate & Business - Sources of <a href=''>Passive
Passive income is not dependent on your time. It is dependent on the asset and the
management of that asset. Passive income requires leveraging of other peoples time
and money. For example, you could purchase a rental property for $100,000 using a
30% down-payment and borrow 70% from the bank. Assuming this property generates a 6%
Net Yield (Gross Yield minus all Operational Costs such as insurance, maintenance,
property taxes, management fees etc) you would generate a net rental yield of
$6,000/annum or $500/month. Now, subtract the cost of the mortgage repayments of say
$300/month from this and we arrive at a net rental income of $200 from this. This is
$200 passive income you didn’t have to trade your time for.

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