Is Passive Income Just An Illusion?

avatar By: IS
Date posted: 05.18.2011 (5:00 am) | Write a Comment  (3 Comments)

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I bet some of you are tired of hearing about passive income by now. Why? Sadly, many have either been disappointed or discouraged enough to stop believing in it. No matter how many experts or bloggers tell you that with as little as $5000, you can start off a dividend portfolio, it doesn’t matter. My M35 partner and I are working on a project about passive income that will be unveiled in the coming months and I think it’s important to make sure that living off of passive income does not become some “impossible goal”. It’s far from it.

I’m always surprised when I hear about some people’s long term financial goals. Why? First off, the biggest problem is that most do not have concrete long term goals. The most basic concept is that without concrete plans, no matter what the field, results are dramatically inferior. There are all kind of stats out there and I could point to any number of them but they all come up to the same thing; goals that are not clearly defined will never be obtained. For some reason, many of us always postpone setting goals, especially long term financial ones. Why?

“I have no idea how much I will need/want”
“How would I know if it’s even possible?”
Etc

Of course it’s a challenge but you are not setting some permanent goal that will define the rest of your life here. You are defining goals that can be adjusted as often and as much as you desire. Without a goal however, what will you be adjusting for?

Once the goal is set, the next step is to create a MAP (massive action plan). How much do you need to save up? How must it be reinvested? Is it possible? Or do the goals need to be revisited? Some try to improve their chances by taking more risks with their portfolio but as we discussed, that is not the way to go. I’ll tell you right now.. If like most Americans you are saving less than 5% of your income every year, making your goals come true will be quite a challenge. You need to set a quality lifestlyle at a reasonable cost and as your income improves, your lifestlye should improve by half or so of that amount.

The problem is often that when employees get a $10,000 raise, they increase their expenses by that amount and often even more. That’s a vicious cycle that makes saving a big challenge.

After the goal and objectives are set

Once the two main steps are done, it’s all about deciding what type of passive income you are looking for (dividend? Etf? Etc) and starting to invest your assets in a smart and consistent way. Every week we discuss dividend investing and that is certainly one way to do so. Having a more aggressive approach for “surplus” savings can also be a winning formula as can many other things.

Picture Your Pasive Income Lifestyle

If you could make enough money to enjoy life, make as much money if you were working, travelling around Europe or just spending time at the beach, how would such a life be? When would you retire? It’s easy to forget how this lifestyle is possible to almost anyone…. Personally, living off of passive income is very much a reality and only time stands between myself and this life goal if I can stick to the plan. How about you?

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3 Comments

  1. Comment by Stephen — May 18, 2011 @ 11:46 am
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    Let’s say that the average dividend of your portfolio is 4% and you want $3,000.00 a month of passive income, that would mean a $900,000.00 portfolio. That is quite a huge number, so yeah it’s discouraging, but that doesn’t mean I’ll stop buying dividend stocks though. I won’t be able to live off of passive income but it will be a nice supplement.

  2. Comment by DW — May 19, 2011 @ 4:17 am
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    My parents started with small goals. Get enough dividend payments to take care of a certain monthly bill. Once attained they would start on another. Over time all of their bills were covered and any income became theirs to do with as they wished. My parents never made a lot of money, but growing up during the depression they new the difference between need and want.
    They are still looking for “deals” at the ages of 94 & 96.

  3. Comment by IS — May 19, 2011 @ 6:48 pm
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    @Stephen – Yeah, when you start off thinking about it that way, it does look like a huge task, but doing it little by little, things go much better than you could imagine:)

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