Passive Income: How to Earn While You're Sleeping

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To be honest, I only heard of the term, "passive income," a couple of years ago when I first started learning about money. Blame that on being raised by parents who believe money should not be publicly discussed and never receiving even a day of financial education at school!

But wait, doesn't my background sound familiar? Because if you're also a Filipino from a middle-class background and also got "traditional" education, you can probably relate. Right? Let's not fret, though, especially now that we understand how important financial education is!

So what's passive income?

This is basically a source of income that you don't have to consistently work hard for. In other words, this is income you get even when you're not doing anything.

Sounds great, right? Imagine not having to worry about your electricity bill because you know a source of passive income takes care of it. Work smarter, not harder, as they say!

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It's not surprising to know that if you want to achieve a level of financial independence, what you need to establish is passive income.

How Different is it from Windfall?

Windfall is money you didn't expect. For example, it could be from an inheritance or a donation or a tax return. Both are not immediate products of working. The difference between a windfall and passive income, however, is that the latter comes regularly.

In other words, it's almost like a salary that you get without lifting a finger. However, unless you have millions in your account that you can freely use to invest, please take note that passive income usually doesn't come right away. It arrives after years of work and investment (remember delayed gratification?).

Common Sources of Passive Income

5 Things You Can Do With Your 5000 Pesos

Suppose you have a spare P5,000 lying around, waiting to get used. How will you use it?

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If somebody asked me that question 2 years back, I'd probably say I don't know, which is true for two reasons. First, I knew zilch about handling money (I'll probably just ask Job about it). Second, even if I was a kuripot spender, because I don't track my money, somehow it always manages to get "lost," so I rarely had P5,000 to spare.

But what if you are unlike me 2 years back and want to be financially wise? What if you're tired of spending your money on senseless things? Your spare cash could be more than P5,000, or less, but for me, this is the magic number in finance. You can do magic with this humble amount.

What it Means to Live Within Your Means

Many of us have surely thought of ways to live a financially comfortable life. I know I have, and I have my reasons. But if we all have the same aspirations, why is it that only a few actually get - and stay - rich?

What separates those on their way to financial freedom from those who, let's just say, are on the totally wrong route?

The answer is simple - too simple actually. Those in one of the two groups live within their means.

C'mon. I must've heard of that a thousand times already. Can't you give me something new? A surefire way to get rich?

Unfortunately, no. You must have heard of the advice a thousand times, and the reason for that is that it works! Coupled with the practice of delayed gratification and having financial knowledge, the principle of living within your means is the surefire route to financial independence.

Why? 

Finance Friday: You Need an Accountability Partner

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Left to my own devices, I would have probably wasted my money on beautiful but unnecessary things.

But I did not.

I may be a master of delayed gratification but that doesn't mean I have self-control of steel. To be honest, I think of shopping all the time! One of my favorite pastimes is online window-shopping where I admire beautiful things. Bags, shoes, furniture, books, homeschool supplies - these are only some of the things in my perpetual want-list. But I haven't given in to buying any just yet.

Why?

Because I have an awesome accountability partner: my mother.

Finance Friday: Your First Investment

Just a few days ago, a friend of mine asked for my help. She wanted (still wants) me to manage her finances.

Woah!

Who would have thought I'd ever be some informal financial adviser of sorts? The way I described it makes it obvious that I'm not taking myself seriously. And that is kinda true because, hello, I don't have certificates under my belt!

But the calling to help other people fix the financial aspect of their lives? I'm taking it very seriously.

This friend of mine, her financial life is not really in shambles. Let's just say she made a few wrong decisions along the way, and now it's time to right those wrongs. And I'm so excited! I can't deny the joy I feel to be part of someone's journey to financial freedom.

Carried Away

During that conversation, I wanted to give her a crash course of everything I came to know about personal finance! She already tithes, so I wanted to tell her about budgeting, emergency funds, investing. Oh I could go on and on!

But thank God for he kept me from getting carried away. He whispered, "Wait. Doesn't she need to go through the first step first?"

Oh yeah. I almost forgot.

Some People Never Look; They Just Jump

Finance Friday: Tips to Practice Delayed Gratification

 

You may understand "delayed gratification" and what it means, but do you practice it?

A couple of Fridays ago, we talked about this secret key to wealth that we call "delayed gratification." We found out how it works and why it should be your ultimate mindset if you want to achieve success in your life.

Let's admit it. Living this kind of lifestyle is easier than done. But another cliché that speaks truth is this: it always seems impossible until it's done. Oh yes, it's hard, but it's not impossible!

In fact, if you begin taking baby steps now, I'm sure your future self will thank you. And me. Haha! Kidding aside, if you're clueless and don't know where to begin, fret not because I'm about to give you practical and doable tips:

1. Create a budget and maintain it.

I firmly believe that writing down should be the first step in reforming your personal finances. This does not only tell you how you can save on your finances but also show you how much money you really have after taxes. The latter is important in keeping in mind how to live within your means.

For more information on budgeting, please click visit this post: Why You Need a Budget.

2. Know the difference between needs and wants.

This is a no-brainer. I'm sure this is self-explanatory. No, a pair of Raybans is not a need.

3. Stop acting on impulse!

The Emergency Fund: Tips on How to Build It

Hey there! This is Part 2 of my "talk" about emergency funds. If you didn't read the first part last week, I suggest you read it first to understand why I'm insisting you create one. Just click here.

Okay, ready?

I am no financial adviser nor am I saying that I'm doing so well with my finances. I'm just your regular, info-hungry 20-something mom.

I'm also just your regular working gal who finds it so tempting to spend all of her income on shopping. It's a monthly struggle really!

But that's just the thing. Many of us don't really need the credibility of finance gurus. Most of the time, we just need someone who's on the same ground as us., someone who experiences the same "temptations." I'm as average as one can get, so you can be sure that what I am saying is not only relatable but also practicable!

I admit that out of all the non-negotiables in my budget (check this post for more about non-negotiables), I find it the hardest to allot money for the emergency fund. It just looks so pointless because I don't know what I'm saving up for or why I need to do it.

But I also have to admit that during times of emergency, I praise God for his imparted wisdom and for convicting me that, yes, an emergency fund is necessary.

I already wrote a post detailing the reasons why one should have an emergency fund, so let's go straight ahead to the practical tips and how-to's. Here are some of the commonly asked questions about emergency funds and my attempt to answer them.

1. How much should I save?

Finance Friday: The First Step in Investment

I've been reading and talking about investments for a year now. I still fondly remember how I first stumbled upon the wonders of stock investments early January this year. Since then, it was as if a light bulb turned on. Why aren't we all doing this? I was so sure I would invest in stocks, but I felt as if it wasn't yet the right time.

I spent the first six months of this year doing pure research. Yes, all I did was read, read, and read. You see, before you take any big step, you should know a lot about it. Don't follow blindly. It might seem like a good step, but without arming yourself with knowledge, you're bound to fail.

I also read a lot of Christian books to  abound in God's wisdom and to remind myself that yes, prosperity is God's plan for us, but we are called to prosper not to hoard riches but to be a blessing to others.

Then, we (Job and I) spent the next six months of the year forming our emergency funds. Based on the research I have done, it is unwise to invest all of your money without setting aside funds that you can dip into in case of emergencies. Without having emergency funds, it is very likely that you will withdraw from your investment, which impairs the power of compound interest, and this defeats the purpose of long-term investment. Thus, there is a need to set aside an emergency fund before investing.

Tip: If you don't know what the terms "stock," "emergency funds," "compound interests," and "long-term investment" mean, do yourself a favor and postpone investing. If you don't know the value of saving and living within (below is better!) your means, postpone investing. If you believe that banks are the only way to go, postpone investing.

First, do your research. Again, I studied personal finance and investments for almost a year, and I'm not done yet. Also, know that investing is not "easy money." As mentioned in Proverbs 13:11, "Dishonest money dwindles away, but he who gathers money little by little makes it grow."

I would add that if you are not tithing regularly, then you should postpone investing. However, I'm saying this from a Christian point of view. Tithing really helps in developing the character, and I believe God designed this to prepare us to be a blessing to others when we prosper.

Anyway, this month, we knew we were prepared to take the first step in investment. COL Financial is a highly-recommended company where ordinary individuals, like you and me, can easily invest in stocks even without huge amounts of money at hand. In fact, you can easily open an account with just P5,000, a far cry from what people used to need to invest.

So this is it! We're finally beginning the journey toward financial independence and a financially-independent retirement hehe. Before we end this post, let's review what you need to do before you invest: