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Realities behind creating passive income

Investment » Realities Behind Creating Passive Income

Creating passive income, not a passive activity
Creating passive income, not a passive activity © T Anderson/Shutterstock.com

When it comes to wealth-building strategies, there's no hotter buzzword at the moment than "passive income." And passive income can do much to quell retirement fears and achieve retirement goals.

For example, to generate $1,000 a month in retirement income from a portfolio, you'd have to amass about $250,000, assuming a 5 percent withdrawal rate. Better to generate a stream of income using creative avenues.

Investopedia defines passive income as "earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved." Popular culture, however, defines it as "any money you earn while sitting on a beach sipping mojitos."

Financial coach and expert Todd Tresidder thinks it falls somewhere between the two, defining passive income as the money you earn from a project or investment after you've made an initial contribution of time or money.

"Many people think that passive income is about getting something for nothing," says Tresidder, founder of FinancialMentor.com, a financial coaching service. "It has a 'get rich quick' appeal ... but in the end, it still involves work. You just give the work upfront."

Untold thousands of people have tried to create fruitful passive-income streams only to be surprised by the amount of work, cash or time involved. So if you're thinking about going down this road, check out the reality behind five types of passive-income strategies.

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