“Income” is typically associated with a salary or wages—you exchange your time, services, or goods for money. This is called “active” income. It requires effort on your behalf, which means it’s inherently limited to how much you can produce and what the market deems a fair price.

However, there is another form of income that investors can use to build significant wealth. Passive income is earned with minimal effort, typically through investments or assets that generate long-term returns. Because passive income does not require your ongoing attention or time, your passive income earning potential is technically limitless (though, of course, it’s essential to be reasonable with your expectations of portfolio growth and return on investment).

Passive income is integral to creating long-term financial security and enabling you to pursue your passions or support your lifestyle without being tied to a traditional 9-5 job for the rest of your life.

Aligning Passive Income with Your Mission

Before we dive into common forms of passive income to consider, it’s important to pause here and think about what your core mission and values are. You should use these to guide your decisions when exploring and selecting those passive income streams.

As an example, perhaps you’d like to support causes that promote sustainability, invest in companies that are dedicated to addressing social causes, or find opportunities to ensure long-term security for your family and future generations to come.

Value-driven investing comes in many forms, including:

• Ethical investing: Selecting investments based on ethical criteria, such as environmental, social, and governance (ESG) factors.
• Impact investing: Selecting investments that contribute to positive social and environmental outcomes.

4 Types of Passive Income Streams Aligned with Different Missions

Let’s dive into four different types of passive income and how they may align with your unique goals and values.

#1: Real Estate Investing

The world of real estate investing is vast, and it can range from purchasing shares of a real estate investment trust (REIT) on the stock market to owning and operating a rental property space—and everything in between.

If you’re particularly interested in supporting social equity and community development, you may want to consider investments that focus on creating more affordable housing options. Or, if you’re passionate about green energy, perhaps it makes sense to invest in green buildings or energy-efficient homes that align with your environmental values.

#2: Dividend-Paying Stocks

There are an inordinate number of businesses you can choose to invest in on the public market. However, some particularly large or well-established companies offer investors the opportunity to own dividend-paying stocks which, as they sound, pay out dividends to shareholders and investors on a regular basis (often quarterly). 

This is one effective way to earn passive income from your portfolio. To align your dividend-paying stocks with your mission and values, research companies that meet your criteria. This could include ESG-focused companies that promote responsible business practices or prioritize diversity in leadership, for example.

#3: Peer-to-Peer Lending and Crowdfunding

Did you know that racial biases make it more difficult for people of color to obtain business loans?¹ 

If you’re interested in supporting local business owners or otherwise uplifting those who may have difficulty obtaining traditional financing, peer-to-peer lending is a possibility. As a direct investor in someone’s business, you can have the satisfaction of watching it grow and flourish without having to get involved in the day-to-day operations.

You may also want to look into investment opportunities in community development financial institutions (CDFIs), which focus on local projects like affordable housing and small business loans in underserved communities. 

#4: Royalties and Licensing

While it’ll take some upfront time and energy, you may find it worthwhile to create content or produce work that aligns with your missions. Perhaps you’d like to write a book on social justice or create sustainable product designs that are licensable, for example. 

Licensing deals and royalties can be lucrative, especially if your product or work grows in popularity over time. With self-publishing options on Amazon and other retailers like Etsy or Canva, it’s easier than ever to develop and sell your original work. 

Final Considerations for Creating Passive Income Streams

As with anything other aspect of your financial life, it’s important to consider a potential passive income stream in conjunction with your long-term goals. The investments mentioned above, for example, require different levels of upfront and ongoing involvement—not to mention they can impact your taxes in different ways.

If you’d like to explore more passive income options, be sure to speak to a financial advisor who understands your core mission and can provide tailored recommendations. Our team at Mission Street Wealth Planning can help you develop a personalized strategy that reflects your values while keeping your long-term goals a top priority. Reach out now and schedule time to learn more about our offerings.

^Sources:

^{1 Study: Racial biases continue to impact loan approvals for minority business owners}