5 Reasons You Should Focus on Creating Passive Income

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No matter what stage of life you’re at or what industry you work in, you’ve likely heard the term “passive income” before. Many people are already generating passive income, but might not refer to it in that way. Passive income can be a variety of ways you make additional money, but the general idea is that it’s something you worked to put in place or create so that you’ll regularly get money back from it with little to no effort on your part. Passive income could be anything from a book you’ve written that you receive royalties from, a program or webinar you created, or something else that people are regularly purchasing. Real estate is also a common source of passive income, as are stock investments. If you’re still deciding about whether you should pursue a type of passive income, here are a few reasons it’s something you should focus on in the near future.

Your time is valuable

First of all, one of the biggest reasons you should push for generating passive income is because your time is valuable. When you’re spending time working in order to make more money, you’re spending a significant amount of time doing something you’re probably not really passionate about in order to make ends meet. Consistent, passive income means you have to spend less time working to make money and actually invest your time in more valuable ways.

Focus on other goals

Once you have more of your valuable time back, you can begin focusing on other goals. Whether passive income accounts for your entire income or just part of it, you’re giving yourself more time to focus on pursuits you actually enjoy. Teach yourself a new language, start a project you’ve been putting off, or travel somewhere exciting. Even just relaxing and spending time with family is a good idea!

Additional income

If you’re still working full-time, passive income gives you the chance to generate additional income. Having some additional income makes it easier to pay your bills or save for a larger purchase you want to make. You’ll appreciate this extra income, especially when you’re putting in minimal work to generate it. You avoid having to get a second job to generate more income and can instead rely on your passive income.

Financial security

If you put enough work into creating your source of passive income, it’s likely that you could meet or exceed what you make at your full-time job. Working toward the goal of generating passive income that you can live off of gives you financial security and peace of mind in case you’d ever lose your regular job.

Freedom to travel

Finally, passive income provides you with the freedom to travel whenever and wherever you want. Maybe you don’t love traveling, but you also have the freedom to live somewhere different and not be tied down to whatever your full-time job is. You can find a place you’ve always wanted to visit or live and head there. If you’re generating enough in passive income, you don’t have to stress about finding a new job that pays enough for you’re living expenses; you’ll cover those in passive income.

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The New, Revolutionary Way of Giving

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Many times, philanthropy and charity have been redeveloped, especially in how they function and their mission. There has always been some form of philanthropy, stemming from the basic human need to help others who sincerely need it. Recently, philanthropy is much more widespread and monitored to make sure no organizations are taking advantage of volunteers, donors, or those in need. Each year, people donate billions of dollars to various organizations, usually as individual donations or as a company. However, now there’s a new way to give, known as donor-advised funds (DAFs), which accounts for over $80 billion. The topic of DAFs has recently been discussed in-depth in a recent Economist article. I’ll go into more detail about what exactly DAFs are and other information regarding them.

What are DAFs?

Donor-advised funds are becoming increasingly popular. DAFs are basically like bank accounts, but for nonprofits. Donors deposit money into the DAF, which can only transfer money to a nonprofit, according to standards set by the IRS. As the donations sit in the account before being passed onto a philanthropy, the funds are invested and gain interest while also remaining tax-free.

Donors can instruct the DAF on where to donate their money, making the process simple, but also allowing a philanthropist to choose where their money goes. DAFs have been around since the 1930s, but have recently become more popular, mainly in the United States. Many financial firms have now joined the world of DAFs and set up their own accounts for philanthropists to deposit money into.

Why are they preferred?

A big part of the appeal of DAFs for donors is that the tax breaks are better. While this may seem like a selfish reason, people are very conscious about how to avoid as many taxes as possible and the money is still going toward good causes. There are also plenty of online platforms to manage DAFs and donate, which makes it easier for people to deposit their money than working directly with many charities. For people who wish to donate goods besides money, DAFs make the entire process easier, because the DAF sells the goods and deposits the money into its account, saving the donor a significant amount of hassle.

Are there any drawbacks?

While there is no hard evidence that DAFs aren’t beneficial, people are concerned over their sudden surge in popularity. Many aren’t sure that DAFs actually lead to more help for the poor, which some people claim they do. Others are turned off by the appearance of the tax breaks helping out wealthy donors, seeing it as another way for the wealthy to get out of paying more taxes. Finally, a major concern is that people will opt for a DAF instead of setting up a foundation, which could decrease the amount of donations because foundations are required to make regular donations to charities. Without foundations, less money may be put into various causes.