The term "passive income" is thrown around on the internet and in personal finance to describe many things. The key part of that phrase is the word "passive".

The common interpretation of this concept is "money while you sleep". The money arrives into your bank account and you have to do absolutely nothing for it to keep coming.

I have heard it used for investment income, real estate income, side-hustle income and many more. Every one of these vehicles is awesome for creating income, but they are far from passive.

Real estate is a lot of work, and requires a lot of know-how. It is quite easy to get yourself into big trouble in real estate if you don't know what you are doing. Plus, the barriers to entry can be tough to overcome.

Side hustles are just that - a HUSTLE. You have to hustle to get it off the ground. This means work. Long hours and personal sacrifice are the price you pay here. Starting and building a successful business is not for the faint of heart.

Investing.

I believe investing in dividend-bearing blue chip stocks is as close to "real" passive income as you can get. You buy a stock and it pays you a quarterly dividend forever.. and you do nothing. A good stock will even give you a raise (increase their dividend payout) from time to time. To me, this is the ultimate in passivity.

Of course, I am not oblivious to the fact that coming up with the money to buy the stock in the first place is a lot of work. This is definitely not passive and can be quite hard when you have other bills to pay. I get it. But the cool thing is you can start small. You can become a dividend investor with ONE share.

But let's look at some other cool things about dividends.

Compounding

Many brokerages offer a "dividend reinvestment" plan, whereby they will automatically buy more stocks with any dividend distributions you receive. This compounds your wealth. This increases passivity as you no longer are working for your initial investment. The stocks are basically buying themselves. This is pretty awesome. The compounding effect is, as you buy more stock, you receive more dividends, which buys even more stock, which increases the divided - you get it. It compounds. The 8th wonder of the world, according to Mr. Einstein.

Taxes

In the US and Canada, dividend income is taxed at a much lower rate than most other income. It can come in the form of tax credits or a special tax rate. Either way, you can earn a smaller rate of return with dividends and still come out ahead as you will keep more of what you earn than, say, interest income.

Diversification

Many people think that diversification is for safety. Yes it is, but the other cool thing about diversification is the cash flow opportunities. Every company has its own yearly cycle for its dividend payout, based on their corporate "year end" and many other factors. This means that not every company pays out their dividends on the same day. If you invest in the right combination of companies, you can increase the number of "pay checks" you receive every month. If you get crazy, you could potentially receive money every single day from dividends. Not the best strategy, but you get the point. You don't have to wait 3 months to receive your next payout. You can diversify and get money every month or even every week. I like that.

Reliability

I like to stick to big companies that have been paying out dividends for decades and sell something that doesn't go out of style. The likelihood of them going out of business is very slim, and they tend to weather the storms of economic volatility quite well. Many companies keep paying dividends even through recessions and pandemics. The odd one even increases their distributions during these time. This provides far more peace of mind that the rent cheque from a tenant or a fickle consumer demographic.

Time

The best thing about dividends as passive income is the time they buy you. Once you buy the stocks the dividends start coming and if you set up your automation correctly, you really have nothing else to do but collect money. This gives you the time freedom to pursue other activities. You can use this time for any number of things. If you use this time to earn more money, and then invest it, you are compounding your time investment. Each dollar you earn without working gives you the opportunity to earn more. It is not only leveraging time, as you are effectively duplicating yourself, you are compounding it as well., This is the ultimate goal. You are not only compounding and leveraging your money, but also your time. Time is a far more precious resource than money and the truly wise know this.

If you are interested in learning more about these concepts and a practical plan for impelneting them into your own life, I humbly suggest you consider reading my books or taking my online course. You can invest in yourself and learn to enjoy the MOST passive income.

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