Jaspreet Singh / Jaspreet Singh
Earning passive income is almost too good to be true. Earning money without having to work actively? Who wouldn’t want that? But passive income can be challenging to generate, especially if you’re focused on get-rich-quick ideas or spreading yourself too thin.In a recent YouTube video, attorney and financial influencer Jaspreet Singh explains that the secret to earning passive income is putting savings into income-generating assets, such as stocks or real estate.
Ideas like dropshipping, starting an Amazon store, or writing an e-book might sound great, but those are hard to generate cash flow from, says Singh.Instead, he says, take the extra money you’re not spending on purchases you don’t necessarily need and put that money into an asset. A dividend-paying stock, for example, can slowly but surely generate passive income for you. Or, investing in real estate might generate some passive income after an initial learning curve, such as collecting rental income.Yet, it’s important to be realistic about what you can earn through passive income. Even if you generously assume a 10% return on your assets, which is very high, a $1,000 investment would only yield $100 per year, explains Singh. He adds that even $100,000 would only result in $10,000, which is substantial but generally not life-changing money.No one on the internet wants to discuss that. “You don’t get rich by investing for cash flow. You’ve got to be rich first to get a lot of the cash flow that will make you wealthy,” says Singh.
In other words, don’t expect to double your money every year by investing in the following buzzworthy stock. For example, you can invest in a diversified index fund to get broad exposure to the stock market and build wealth over time.The S&P 500 averages around 6%-7% returns per year on average after inflation, according to a SoFi article. Then, you can let the magic of compound interest go to work. If you invest $1,500 per month at a 7% return, you can end up with somewhere near $250,000 after ten years. Singh calls this period of building your assets the “decade of sacrifice.” If you’re willing to cut unnecessary spending and put money into investments year after year, you can eventually generate substantial passive income.“Now you have assets that are paying for your lifestyle, instead of just you working to pay for your lifestyle. This is what it means to become wealthy,” says Singh.
More From GOBankingRates