Did you find yourself being in the trap of the 9 to 5 scam? You are tired of working every day just to have nothing on your bank account at the end of the month? In this article, you’ll learn about the concept of passive income and how to make your money work for you in the future while spending your days doing things you really want to do.
Finding ways to financial independence
Every day eight or nine hours in the office, then the way to work, then quickly to the supermarket, a little household, dinner, couch. And that’s about 48 weeks a year, only to finally relax a little while on holiday and look forward to the pension, which will presumably be quite puny. Oh dear. Does that sound familiar to you?
In this case, we would like to invite you with this article to get to know another possibility: a self-determined, financially carefree life, which you spend with things that give you pleasure. Do like the millionaires do: grab a hammock and let your soul dangle in the happy feeling that your money is working for you in the meantime. Sounds good? Then read on to find out how to get out of the trap of the 9 to 5 scam.
You’re also gonna find out
– why you lose money when you’re saving,
– how you’re making a profit out of the marathon in your city.
– why you probably have a wrong picture of stockbrokers.
Passive income is your key to get out of the trap of the 9 to 5 scam
Beach, hammock, the palm trees sway in the light breeze and the ice cubes jingle in the cocktail. You know, don’t you? Either from advertising or from holidays. In “real” life such situations are unfortunately rare, since everyday life consists of office, supermarket and couch. But why is that?
In short: because we end up in the very hamster wheel of financial dependence in which most of us spend our lives. You, your parents and probably already your grandparents. In school and maybe at university you learned everything you need to be a useful hamster in this wheel. However, the financial knowledge you need to escape this situation is not what you learn in our educational system.
The first step towards financial freedom is to understand the two most important basic financial laws. The first is simple: “Spend less than you earn”. – or vice versa: “Take in more than you spend!” Logical, but how much less spending is advisable? Here you should follow the four percent rule. If your annual expenses do not consume more than 4% of your savings, then you are financially free.
The second financial constitution is similarly simple: “Liabilities cost money, assets bring money.” And here we are already clearing up a frequent misunderstanding: Your car and your house are not assets, but above all a liability, because you constantly have to pay for them. Petrol, insurance, repairs, ancillary costs, house money, all these are hard dollars that go out of your account. Assets are shares, licenses or rentals, i.e. things from which you earn more or less regular income.
This income is passive in contrast to your salary – and in it lies the key to your financial freedom. Compared to the active income, you only have to invest very little time or do almost nothing for it. As soon as your passive income is higher than your expenses, you are off the hook.
But aren’t stocks, investments and high interest income just for the rich? No, not at all! You too can profit from it. To understand how, we take a closer look at passive income.
If you invest time at the beginning, automation and scalability will later ensure your income
Making money doing nothing sounds great, doesn’t it? But of course the thing has a little catch, otherwise everyone would do it that way.
The catch is that in the beginning you have to invest some time and above all money in order to make the passive income streams flow. In the long run, however, this effort pays off twice and three times over. If you go to work, you get your salary at the end of the month. With passive income, on the other hand, you start from zero. You need to find out about the different types of passive income, which this article is the first step towards.
Start by thinking about how much time you want to invest in the “passive income” project. If you want to start small, start with one hour a day. This results in an entire working day per week and 52 days extrapolated to one year during which you work on your financial future.
Still, “making the money work for you” sounds a bit like black magic. How does it work that the notes multiply on their own? The two magic words are scalability and automation.
Scalability means that you have a product or service that you create once and then multiply almost effortlessly and free of charge. Especially on the Internet, the possibilities of scalability are enormous. Imagine, for example, creating a few explanatory videos on a topic: once you have produced them, you can charge a small fee for each view
Automation results in minimal management and effort for your passive income. For example, if you have an online store, you always pack and send the packages by hand, and this will not change in the foreseeable future. But you don’t have to write the bills yourself, you can automate this part of the work by using a program like Fastbill. These programs automatically create an invoice with every order, sort it into your accounting and even automatically keep your accountant up to date. This saves you a lot of time through automation.
Saving doesn’t make you rich – investing does
Does it also seem to you as if the rich are getting richer and richer all by themselves, while you are struggling without this having a noticeable effect on your bank account balance? There you are like many. To change this situation, you must live by a simple rule that the rich have long understood: Saving does not make you rich, but investing.
Most of us are unconsciously mistaken. We think that we just have to put enough aside to have a lot on our savings account at some point. But this calculation does not work. It may sound absurd at first, but the truth is: Who saves, loses. This is due to inflation, which ensures that money loses purchasing power and is worth a little less every year.
Let’s look at a simple example. If you have saved 10,000 dollars and the inflation rate is 2.5%, after five years there are only 8810 dollars left. We think of ourselves as conservative savers who are betting on security, and cash runs through our fingers all the time.
It makes much more sense to reduce your daily consumption, save a certain amount and then invest it. Try consistently to gain a financial buffer by saving about 20 percent of your net income every month. If you are always short of cash, it may sound impossible, but if you are serious, it will work.
Write down all your expenses once a month and then use the red pencil. You’ll quickly realize how much money you’re spending on superfluous bits and pieces. For example, don’t buy a floppy sandwich for four dollars at the roadhouse, but rather pack a sandwich instead. That sounds like a small sum, but at the end of the month, it’s just such little things that add up to a large amount – which you can then transfer directly to a second account as payment for yourself.
This amount is an important investment in your own future. It is the cornerstone of your passive income and financial independence.
Use compound interest and invest as widely as possible to minimize risk
Before we start looking at concrete investment opportunities, let us take a look at an astonishing phenomenon: compound interest. It’s not that complicated. If, for example, you invest 100 dollars, you get an interest rate of 10 percent to keep the bill as simple as possible. This increases your wealth over time without you having to do anything. And because this percentage is higher than the inflation rate, there is a regular increase in interest rates. The trick is that you also receive interest on these payouts, so your assets grow exponentially.
A concrete example illustrates the magical power of compound interest. You invest 100 dollars with 10 percent interest. Within 7 years it will become 200 dollars, and after 20 years you already have 627 dollars, without even lifting a finger. Not bad, is it?
To take advantage of compound interest, you can, for example, create an overnight deposit account. This has the advantage that you cannot simply withdraw your savings from the atm machine, so that they are protected from spontaneous shopping trips. However, interest rates are currently historically low, so make sure they are at least above the inflation rate.
Before you start investing seriously, you should also consider the concepts of return, risk and diversification. Return describes the payouts that result from an investment. The higher the risk, the higher the return, but only if you are lucky. Diversification helps against risk. You diversify your investments by spreading them across different investment forms, sectors or countries, so that any losses on one investment are offset by the gains on another.
Of course, you should always inform yourself as well as possible before making an investment. The better you know a company or an industry, the better you will be able to assess the risk of your investment and consciously decide how much of it you are willing to accept.
That’s the theory – now it’s going to be practical. How do you ensure that you build up as much passive income as possible?
To generate passive income online, you have to put yourself in the shoes of your customers
There are two big areas where you can generate passive income: online and offline. Let’s start with the digital possibilities. How do you get rich on the Internet?
Simply put, by selling people a solution to a problem. What exactly that is in your case depends entirely on you. Where are your talents? What topics are you enthusiastic about and where do you want to put your energy? Your customers will quickly notice if you are not fully involved or do not appear authentic. So find something that suits you well.
Then you have to put yourself in the position of your customers as well as possible. What problem do you solve for them? There are countless possibilities on the Internet to offer real added value with little financial effort. Let’s take a financial blog as an example: If you use open source programs like WordPress, your blog will be almost free with an appealing design. Implementing your own online shop is no longer expensive today. If you still maintain this blog regularly, you will solve a real problem, because many people have a bit of money on the high end and wonder how they can best invest it.
Only with website visitors alone you do not earn any income. To make a profit, you have to turn the traffic on your site into prospects and customers. Some of the visitors have simply found you via search terms on Google, others have probably already informed themselves in advance and are more targeted in their search. With a good design, useful products and authenticity, a small percentage of these visitors will buy your product. Their trust is best rewarded by quality and good service, so that they will continue to shop with you in the future.
So before you get started, take some time to think carefully about who your customers are and how to make them happy. In this way, you will win loyal regular customers who constantly contribute to your passive income. That could be a good start for you to get out of the trap of the 9 to 5 scam.
“Sell only what you would buy yourself.”
When marketing, focus as precisely as possible on your target group
Let’s say you’ve built your website with a few visitors, and you’ve already won a few customers. The next step is to keep these customers with you. There is a simple and underestimated way to do this: a mailing list.
When your customers buy your product, ask them directly for their email address. But be careful and get legal advice, because privacy is not to be trifled with! The basic data protection regulation applies throughout Europe and if you do not respect it, you will be liable to prosecution, which can cost you a lot of money.
Collect e-mail addresses and inform your customers that they will receive a newsletter and individualized offers on a regular basis. With these mailings it is important that you know your target group with their wishes and interests as exactly as possible. If, for example, you sell boxer shorts, you are welcome to inform your customers by e-mail about new models or special offers. However, hardly any of your customers are interested in the make-up offers in your partner store.
The better you know your customers and put yourself in their shoes, the more success you will have with your mailings. They will react more positively to your mails and increase your sales in the long run. So: Please don’t get on their nerves.
If you know your customers well, you can also use lucrative affiliate marketing. This is a collaboration with partner companies that fit well with your own business and would like to access your customer base.
These partners then place targeted advertisements on your site that are relevant to your customers. Another possibility is that they provide you with links that you publish. If your customers buy something from your partner company through one of these links, you will automatically receive a small commission. AffiliateMarketing is passive income par excellence: You post a link from time to time and the money comes to your account all by itself.
If you don’t feel like a fish in water on the internet, don’t worry. You can also generate passive income in the real offline world. In the next two sections we will look at how this works.
Stock-Shares and crowdfunding are two ways to invest your money
If you believe Hollywood, investors and stock traders lead a crazy, dissipated life. Thrills and full risk in the Wolf of Wall Street style are not your thing? Don’t worry – real asset management is much more boring in reality and there are plenty of opportunities for cautious investors to make good money. Don’t rush to buy and sell stocks, for example.
In principle, shares are nothing more than company shares that you buy on the stock exchange. You then receive dividends for your shares at regular intervals, i.e. your share in the company’s profits. Their amount is determined by the board of directors.
The value of stocks fluctuates from day to day and sometimes stocks lose massive value over weeks. The profit here lies in the long-term investment. For example, the German stock index, the DAX, has risen by an average of 9.3 percent per year since 1981. This means that in the short term you can lose, in the long term you will win.
If you are not sure which stocks you would like to invest in, hire a broker or invest time in research yourself. Some of the most stable stocks are Procter & Gamble, Nestlé or McDonalds.
If you are willing to take risks, you can also try crowdfunding. You can buy shares in companies from startups. You choose which business idea you want to support and share the risk with the founders. But beware: If the young company goes bankrupt, your money is lost. However, it is also possible that the company will be a great success and you will make enormous profits. Many young entrepreneurs today no longer want to be dependent on big investors and are happy about private investors.
The crowdfunding is definitely exciting. Who knows, maybe you’ll invest in the next Facebook or Apple?
Real estate rentals and real estate funds are usually very stable and secure investments
Finally, we take a look at another, but no less interesting, area where you can invest your money to generate passive income. It’s about rentals – a classic investment field where you’re almost always on the safe side.
Apartments and houses are rented out in particular. Even if you do not own real estate, you can rent out your guest room or even your entire apartment when you are on holiday. Thanks to Airbnb, it’s easy these days. Especially when a big event like a marathon or a football game takes place in your city, you can earn money quickly and easily – because demand makes prices skyrocket. But please inform yourself in advance about the tax regulations and whether you need a business registration for it.
Do you have a car? If so, then you know that insurance, taxes and repairs are quite expensive. Most cars just stand around a lot of the time and are money eaters. Fortunately, there are car sharing platforms today. With them you can rent your car on a daily basis. And don’t worry, the platforms also take care of the insurance if one of the tenants doesn’t pay attention and gives you your car back with a scratch.
Let’s get back to real estate properties. Even if you haven’t just saved $500,000 to buy a house or condo, you can still benefit from this stable market. How? Simply by buying real estate funds or shares. This will save you the high administrative costs that real estate normally entails, while still benefiting from the high returns in this industry. Sounds interesting?
Now, however, end with the theory, with this blog article alone you do not earn a cent. Get active, put some money aside and look for a nice investment opportunity that will be the basis for your future fortune. Get out of the trap of the 9 to 5 scam and i´ll see you on the beach!
Wrap-Up
Investment is not a prerogative of the rich. Even those who only receive an average salary can, with a little patience and consistency, lay the foundation for a passive income. By investing in their own online business, company shares or real estate, everyone can approach their financial freedom in order to get out of the hamster wheel of wage labour in the long term.
Use buy-and-hold tactics to buy stocks. You have to get into the stock market first. You have to find out which stocks are right for you and how long you will keep them. You will soon find that the fees for buying and selling shares are quite expensive.
Therefore, you are well advised to use the buy-and-hold tactic: first save about 2000 dollars, which you then invest in stocks. You keep them in your portfolio until you can sell them with a profit that is so high that it supports the fee payments and you still make a profit.
And don´t forget that Health Wealth is very important too!
If you want to learn more, have a look at the Top 50 Personal Finance Blogs