Passive income can be referred to as the term that has been catching on for the last twenty years in the ‘wealth building professional’ community. This concept, however, has been around for quite some time; it came to be known in conjunction with those involved in wealth creation only. Any time the person willing to make money has invested in someone’s business and shared interest in loans or profits, also without actual participation, a passive stream of income has developed. It is better known as a wealth creation system.

passive income

The term ‘passive’ literally means that the investor does not require any action. However, the fact is that there is a lot of work to be done from the beginning. This work cannot be left undone at all costs. After this work has been completed, only a conspicuous amount of lasting work is required. This work must be done to ensure that the fundamentals related to investing have not changed, or that you have not been offered a better opportunity than this. All of the above steps are just the tip of an iceberg, in terms of the wealth creation system.

patience and capital

If you intend to build wealth over the long term through passive sources of income, i.e. without starting your own business or by actively trading bonds/stocks, or by selling property or owning it, then you would need 2 things in adequate quantities: capital and patience. Of course, reaching long-term wealth and income goals would depend heavily on your current accumulated capital. However, if you use compounding properly and with enough time, passive income sources can, with considerably less risk and the greatest of convenience, build sober wealth. The wealth creation system, if designed with these factors in mind, would create wonders.

pyramid

The wealth creation system generally builds a pyramid related to sources of passive income. It guarantees diversification, as well as keeping risks low even after the growth of the pyramid. In the beginning, you should set a goal for your target income level. Let this income be $5,000 per month (supposedly), from your passive income portfolio. This also implies a capital requirement of around $1 million at a return of around 6% on average. To get there, put I-Bond, TIPS, CD, and corresponding Municipal Bond funds in your 1st tier of passive income.

Funds related to municipal bonds are typically tax-free, despite the bond rate association. It should be noted that you would generally end up far ahead with that form of fund compared to the taxable account. The operation of CDs is very easy. You can continue transactions via CD at the distant or neighboring bank branch. The best rates can be found here. I-Bond and TIPS do the job of protecting your money against inflation, although the returns may not be as high. Resorting to these means is the springboard to the wealth creation system.

You can have an initial $50,000 of yours placed in 1 or even more such vehicles and at the same time start sending returns to the second tier of passive income sources. The second tier of the wealth building system includes REITs, high-yield funds, and medium-term bond funds, etc.