?If you don?t find a way to make money while you sleep, you will work until you die.? ? Warren Buffett
What is Passive Income?
Plant an apple tree, and over time, you?ll have apples. Plant enough apple trees, and you?ll never run out of your juicy apples. It sounds silly, but many people don?t realize that they can "plant" their money and reap the "fruits."
Passive income is a regular stream of money earned with little or no effort (apples don?t pick themselves, right?). It?s the construction of a structure that doesn?t depend on you to keep existing. Unlike a salary, which requires time, sweat, and tears, passive income usually requires just one of these three resources: time.
Imagine your monthly living cost is 10,000 reais. If you have no passive income, you?ll need to work every month to cover your bills. Now, suppose you have a passive income of 4,000 reais per month. You still need to work, but now you only need to cover the remaining 6,000 reais. Increase that monthly passive income to 10,000 reais, and working will no longer be an obligation?your right to choose has just been unlocked.
All of this sounds too good to be true, but how can you actually achieve it?
How to Build Passive Income?
There are many ways to generate passive income. You can own several properties and live off the rent, you can have automated e-commerce stores, you can receive royalties for something you?ve created, or even build a solid portfolio in the financial market.
Notice that all the methods mentioned either require a high investment to achieve the goal or a Herculean effort. I believe the simplest and cheapest way to start building passive income is by investing in financial assets, such as stocks or real estate funds (of course, this must fit your profile). This method is adopted by the greatest investors of all time, like Warren Buffett and the Brazilian Luiz Barsi.
As a point of interest, the last time I heard Barsi talk about his dividends, he was earning around ONE MILLION a day! Not bad, right?
Barsi's method basically consists of buying good dividend-paying stocks and reinvesting the dividends received, thus creating the famous ?Snowball Effect.?
What are Dividends and Which Stocks Pay Them?
Whenever someone buys a share of a company, they become a partner in that company and, as a partner, are exposed to the risks and rights of that company. One of these rights is receiving a share of the profits, the famous dividends. Do all stocks pay dividends? No! Many companies allocate their profits for other purposes, and the reasons for this can be found in the company's investor relations materials. The frequency of payments also varies: they can be monthly, bimonthly, quarterly, semi-annual, or annual, depending on the stock.
These companies that don?t pay dividends are not of interest to us in creating passive income. It?s like buying eucalyptus expecting apples; the only way to get some benefit from the eucalyptus is to wait for it to grow, cut it down, and sell the wood.
To build a passive income portfolio, we should look for good dividend-paying companies. We can find this and other information on websites like Status Invest, Fundamentus, and Investidor 10.
?I found a company that pays 15% dividends per year! I?m going to buy it!?
That?s what a friend said to me some time ago. What would you say about this company? Would you buy it?
The question here is: ?Why??. Why did it pay 15%? Notice that I said ?paid? and not ?pays.? Remember: ?Past results are no guarantee of future results.? You need to ask yourself the reason for the dividends, the history, the timing. It?s no use buying this stock if it doesn?t pay anything more after that. It might have just sold a property or something like that and distributed the amount as a dividend. You didn?t buy an apple tree, but rather a sack of apples.
?Does that mean I have to become an expert to create this portfolio??
Not necessarily. You can rely on reports from analysts and investment advisors to help you understand this. But I must issue a warning: don?t blindly trust anything! Understand, have discernment, and act! You wouldn?t enter into just any partnership, so why would you buy just any stock?
Difference Between Interest on Equity and Dividends
Both are classified as distributions, meaning they are results distributed by companies to their shareholders. The biggest difference between them is their origin and taxation. Dividends come from the distribution of a company?s profits from its current activities and are exempt from income tax. On the other hand, Interest on Equity is distributed as ?excess cash,? being taken from the company?s reserves. It?s worth remembering that the company distributing Interest on Equity records it as an expense, thus reducing its tax base, but the shareholder pays 15% income tax on the Interest on Equity.
Conclusion
Consistency is the word that defines the construction of a passive income portfolio. Understand where you are putting your money; don?t be at the mercy of the market. Brazilians don?t have a culture of studying investments?don?t be part of the crowd!
The beginning can be challenging and even a little disappointing, but don?t give up. Success is the sum of small efforts repeated day after day. Remember, crumbs are also bread.
Plant an apple tree, and over time, you?ll have apples. Plant enough apple trees, and you?ll never run out of your juicy apples. It sounds silly, but many people don?t realize that they can "plant" their money and reap the "fruits."