photo credit: lumaxartOne of the most important steps in building passive income streams is to use the money that you have earned to your advantage. I like to call it recycling my cash flow so that I can use it over and over again to build new sources of passive income. The concept is nothing new to investors. Many financial experts tell you to invest in your retirement plan early so that you can use compounding interest to build your portfolio over the long-term. The ideals for compounding your passive income are very similar to investing in a retirement plan that continually tries to reinvest it’s earnings. The only difference is that you are reinvesting your hard earned cash flow from passive income streams back into existing streams or into new streams. This is a very critical and necessary step in the creation of wealth. Obviously everyone wants to go out and buy a new flat screen television or toy with the income they generated. However, it takes discipline and long-term goals to avoid spending this money and to reinvest it into something that will work to generate more income for you.
I feel so strongly about recycling my cash flow that I choose to create my online identity around that concept. Take a look at my logo. Notice the two arrows that form a circular pattern? Those arrows represent the flow of income that is continuously reinvested back into more investments. While this is a simple representation of the flow of cash, it is the underlying meaning of why this site was created. Those two simple arrows are a constant reminder to me that I need to keep reinvesting my cash into existing and new investments that will generate more and more cash.
Here are a couple very simple examples of how one can recycle (reinvest) their passive streams of income.
- DRIP – Do you have dividend producing stocks in your passive income portfolio? DRIP stands for Dividend Reinvestment Plan and is a way to automatically reinvest your dividend earnings by using them to purchase new shares of the same stock. It is typically very easy to set up a DRIP plan through your broker. Reinvesting your dividend income through DRIP is a classic way to recycle your cash flow.
- Certificate of Deposits – If you own a CD, what do you do with the interest and initial investment once the CD has expired? My wife and I have most of our long-term CD investments setup to reinvest all of the original investment and the interest earned back into a new CD upon expiration. Each time one of our CDs expires, we have a 20-day window available to check out other CD rates and have the opportunity to switch to a different CD. This is one of the truest forms of passive income available.
- Blog Income – Do you generate any money from your blog or website? What do you do with the money? While my blogging income is still in its infancy stage, anytime I get a payout it is sent directly to my ING Saving’s account. The money will sit there and earn a little interest until I decide where to reinvest or recycle that income.
- eHow Revenue – I have a plan to eventually earn $1,000 per month in passive income from my eHow articles. Some may say that this is an unattainable goal, but I believe it can happen with hard work and dedication. What will I be doing with that $1,000 each month if I meet my goals? My plan would be to use that income to start a new passive income stream – a rental property. While that money won’t purchase a rental property outright, it should come close to paying for the monthly mortgage, taxes, and other expenses to support this opportunity. I don’t want to overextend myself with expenses from any new investments, so I plan to generate enough income to support new passive income streams.
- Rental Property – Someday when I purchase my first rental property and use monthly income generated from other sources to pay the bills – I should still receive monthly payments from a renter. While some of this money would go for expenses and upkeep, the other portion will build up and be reinvested into a second and third rental property. Get the picture?
How do you recycle your passive income?
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Hi,
Thanks for the passive recycle income list.
It is a great way for compounding your returns, provided you do not need the funds for other expenses.
Rendell
Rendell @ BrandlessBlog.com’s last blog post..Will The Stimulus Fail?
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Great post! This is a concept that is the best insulation in a down-turn in a revenue stream. No matter what happens in the future, the earned money keeps making money. Ah, what a sweet concept. I like to think of each dollar as an employee out working hard to make money (only without the drama and Workman’s Comp. insurance)Thanks for the great reminder.
Earlyriser’s last blog post..Passive Income- Writing for Ehow
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Good article. I’m a big fan of CDs right now while the economy and market are uncertain. I wrote an article on my blog about finding money in your normal life to fund your savings or CD. Check it out.
elementary-finance.com’s last blog post..Flexible Spending Accounts Explained
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Speaking of idle money, I just realized today that I’ve got about $400 sitting idle in a no interest bank account that I used for my ebay sales several years ago. It’s so important as you mention to keep money recycling and working for us. Your logo is a great reminder too.
The Passive Dad’s last blog post..2009 Bill Proposed For New Car Tax Deduction Up To $7,500
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@Rendell – Hope I can help you with your passive income streams!
@Earlyriser – That is an awesome way of explaining passive income – each dollar as an employee out working hard for you.
@elementary-finance.com – CDs are a nice alternative and option for passive income – especially right now!
@The Passive Dad – Glad you found your $400!
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What little passive income I have goes to my living expenses.
Hopefully, it will someday cover ALL my living expenses!
Tom’s last blog post..Worst Companies to Work For
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@Tom – Good luck to you in your passive income adventures!
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You know, I am so glad for your explanation of your symbol of recycled cash flow! That is one of the biggest mistakes we tend to make: getting excited about profits without reinvesting them. Remember the words of Arkad from the Richest Man in Babylon: compound interest creates those little servants which keep on working for us, once we are done with our work, resulting in a nice harvest at the end a long, patient, and prosperous time horizon!
Seve’s last blog post..Links for 2009-01-11 [del.icio.us]
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@Steve – I really like the phrase ‘…little servants which keep on working for us…’. Patience is also a really big part.
passivefamilyincome’s last blog post..Job Loss, Pay Freezes, and 401k cuts
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m sure u will achieve your target of $1k a month from this blog … as the posts by u are very interesting and helpful … like in this post ur helping out on what to do with ur online income and to get urself much better with it without wasting the interest which u can get from it.
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