Going into the details of why passive income is important without making clear the meaning can be pretty confusing for some people, so I am going to make it clear to you the meaning of passive income before talking about its benefits.

 

What Is Passive Income?

Passive income is that income that you receive without putting much effort, most times it requires very much lesser commitment, requirement and also maintenance. What are we saying here? The big factor hiding behind, commitment, maintenance and requirements is TIME. Unlike active income where if you don’t invest your time in what you are doing, you may end up running out of cash, passive income demands lesser time with high yield.

An active income earner does not earn if he or she does not work, so for any reason you have an accident, or incapacitated in anyway, then your cash flow also stops. Sometimes too, you may end up not earning for life if it is a severe case. Let’s say an athlete, or a contractor or a builder, who depend on their limbs for work and then you lose them, how then can you continue to independently sustain your livelihood. Ok enough of the bad bad stories.

Creating a passive income however is not as easy as you think, well that not the topic we are treating today, so let us dive into our points on why you need to have a passive income.

It reduces your stress, anxiety and fear of the future

Most anxiety and stress cases come from inability to fend for your basic needs or extra wants an upon that work in and out. There is always this feeling of hopelessness especially when you think about repeating the same process for a lifetime, there is a saying “the worst madness is repeating a process and still expect different results” you wake up every day and rush to your work place, do almost the same thing, sometimes you get promoted or a freeday, or a leave of vacation. Funny enough, our problems and responsibilities keep increasing and the old ones keep repeating. From student, to bachelor or spinster, then to family and children responsibilities, while the bills keep adding and the stomach keeps rumbling. Hence, we just have few moments to enjoy what we have because we are tied up with “if I go for vacation with my friends and skip work, I’ll stay hungry if I get home”. There is no doubt that having passive income takes you far away from such stress and fear of the future. Giving you time to make newer aspirations and also rekindle your hopes.

More time to do what you love and not what pays the bills

We have so many passionate things we want to do, like skating in all the parks in the whole world lol. Most of the things we are passionate about cannot provide us with the income we need to sustain our lives. Passive income however allows you to do all you love while still earning and being able to be free of debts.

Passive income most of the times too outpaces your debts, which gives you a project on starting or involving yourself in projects that you love.

Additional protection

If you work in a conventional profession, you only receive salary if you work regularly. If you do not want to work for a few weeks beyond your agreed days off, your cash flow will dry up. So in the end, you sell a part of your lifetime for money and, as the saying goes, you are in the “hamster wheel”. You can make a lot of money this way, for example, as a manager in a large company, but the principle always works in the same way. You exchange your lifetime for money. So most of us drive a huge risk here.

When investing you always value high diversification and security, why put everything on one card with only one income stream?

Although I enjoy working in my job, I always look for ways to increase my residual income and boost my extra earnings, so that I get less hard on the case, or more money on the other hand. Optimally so much that, for example, the loss of my job financially does not hit me at all. About the use of the extra money from your extra money you need, of course, decide for yourself, but it is important that you build yourself a passive income. So the income, which continues to flow even when your active income runs dry, This flow of money goes on for 24 hours, even when you’re sleeping while lying on the beach on vacation, or in the evening in your armchair with a cozy book and a hot cup of tea.

You can build a passive additional income on a part-time basis, the possibilities are manifold. My way is mainly the passive investment in the world economy through stocks and P2P personal loans. Basically, this kind of passive income only requires a high savings rate, good investments and a decent return. Once the passive income stream has been strong and set in motion for years, it usually runs by itself and it does not actually require any additional capital to take care of a continuation of the investment.

Extra income to fulfill wishes

You have big wishes that you want to fulfill? Would you like to see the Maldives, drive a car which is too big for your salary? Again, you can use the passive income. As mentioned above, you decide for yourself how to use your passive income. As long as you do not need it for hedging and it’s just extra money, you can of course fulfill your wishes with it.

I also use part of my passive income for this. I’m a big travel fan, because I think there’s nothing in the world that’s more relevant to us personally than impressions from foreign countries. These will last a lifetime. Going out on  vacations and grabbing that moment of your life that you can never forget

So use your extra income to reward you and fulfill your wishes.

Passive additional earnings as old-age provision

I think you know by now that you have to build your own fortune in addition to your state pension, in order to have a decent standard of living in old age. As we grow older, our financial reserves must also last longer and longer. According to Statista.com, the monthly gross pension in 2015 is 1314 euros per month and has to be enough for deductions for the rest of your life

So the question is, how do you meaningfully protect yourself in old age? Personally, I’m not a fan of pension plans over insurers and fund companies, which I do not have under my own control and for which I have to pay some horrendous fees. Although there are often only a few percent discount on management fees, etc., you will end up missing huge sums of money.

 

Conclusion

To supplement your monthly pension without having to work in a supermarket at the age of 70 or putting a lot of unnecessary money into private insurers, all you have to do is set up a passive income, which we would talk about subsequently.