Does Passive Income Negate The Need For Mortgage Cover?
Firstly you need to understand the reason people have mortgage cover – to ensure that the mortgage commitments are met while you (the insured) is unable to meet those commitments. This could be due to your inability to earn income from either a disability or death.
Does Everyone Need Mortgage Protection Insurance?
The simple answer is “NO”
You need to ensure that the income you generate does not need your personal exertion.
That is passive revenue or income.
As mentioned above, the reason that you would have mortgage cover is to ensure that you can make your mortgage repayments if your income stops so having an income that continues when you are unable to work means your income does not stop when you do – perfect!
This of course differs for everyone, but the ideal is to replace your existing income from your “job” with passive income.
Having a true passive income means that you are paid every day, week or month without having to do any work to create the income and this means that you have more time on your hands, so often people that live totally off a passive income want more money as they have more time on their hands and therefore like to spend more money too.
How To Create A Passive Income
I think most of us would like to have a passive income – but it takes work, planning and/or some luck to create a passive income.
Here are a few ways to create a passive income;
Investment – if you have a lump-sum money to invest then with prudent investment you can create a passive income. If you invested ‘say’ $500,000 in a portfolio that gave a return of 5% then you would earn $25,000 per year but you should then allow for tax and inflation.
The advantage of investing a lump-sum is that you get an immediate return on the investment, but the disadvantage is most of us do not have a large sum of money to invest. Imagine how much you would need to invest if you wanted a passive income of $100,000 per year; that is an investment of $2-million.
Property – people love to buy property as an investment and most wealthy people have a property portfolio. You can get started by leveraging off your home and borrowing the money to buy your first investment property, but it takes quite a few years before the portfolio is actually producing an income for you as most often you need to either wait for rents to increase and/or the loan costs to decrease.
Large Business – some larger businesses do not require your input on a daily basis as you can have staff run the business operations; however they do cost a lot of time and money to establish.
The fact that a business is “large” generally means everything about them is large including the initial investment, the cashflow the business requires, the staffing for the business and this all leads to a larger risk of things going wrong. So while some large businesses seem to run without the business owners direct input, most businesses will be more successful with the business owner at the helm.
Small Business – there are some small business models that can create a passive income for the business owner. Most often these require you to forgo some income upfront and spread the income over the useful life of the product of service. An example might be website creation and hosting; whereby instead of a large upfront cost for the work undertaken you may choose to receive a lesser upfront payment and spread the payment over ‘say 5-years with hosting continuing for the life of the website, or at least while your hosting offer remains competitive.
To successfully create a passive income you need to structure your small business so that a lot of the work that generates the income can either be done by staff, be out sourced or automated.
Network Marketing – this is a small business model where you dedicate yourself to creating a network of people that see the opportunity to create a passive income from a home business and then help them get their own networks. You get paid for your own sales and share in the profits of your network so that once established you receive an ever-increasing passive income as your network grows. This type of business model was made unpopular by companies such as Amway where they encouraged people to recruit their friends and family into a business that sold overpriced products.
The internet has seen network marketing rebuild itself and now their some very good opportunities to get involved in businesses that offer a low cost start-up and good potential for creating online income from offering value driven products and leveraging off the size and power of the internet instead of having to recruit family and friends.
These online businesses make the perfect home business and one that has become popular is the Plug-In-Profit concept. With this you get a fully set up and free website which links with five global internet businesses based on the networking marketing model and
Read this review – Bernard earned $310 in the last 72 hours after following your step by step instructions. Not a large income, but he is just getting started too.
Everyone should consider how they can reduce the reliance on them having to get up and go to work each day, and therefore how to protect their income.
This post just touches on the main ways to create a passive income.