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5 Ways to Make Passive Income
March 1, 2012 Business Passive Income
Earning passive income should be a goal for everyone. Whether you are working, married, retired, in school, or even if you are completely happy in your current situation it makes sense to get started on earning passive income right now. People have different definitions of what passive income is. Some people claim passive income can only be achieved through stocks, others believe any income that you don’t trade your time for (paid per hour) would qualify as passive income. Let me start by saying no income is completely passive. Even if you are able to invest a large sum of money into stocks/mutual funds/ETFs/bonds/etc, you still have to spend time to manage that portfolio. On the same topic, if you hire someone to manage your investment portfolio you still have to spend time evaluating the performance of the person managing the portfolio. My definition of passive income is money earned that doesn’t require your active involvement. I believe that the passive income definition isn’t black and white. Instead I think forms of passive income fall on a scale with some methods requiring more involvement to keep the income stream coming. Below are 5 ways to make passive income ordered by the amount of required involvement.
Investments
Earning income through investments is by far the most ideal situation. Investment income requires the smallest amount of time to maintain. The time required could be as little as a few hours per year. There are many forms of investment that I am lumping into this category including: interest, dividends, capital gains, and others. Unfortunately, it is very difficult to make a living off investments alone. The first requirement is that you have a large sum of money to invest. This is the main hurdle for most people being able to live off investments. A typical household in the U.S. would probably need a few million to be able to easily and safely live off of those investments. The second problem is that your cost of living has to be very reasonable in order to live off investments. Many people that have worked hard enough to accumulate millions of dollars probably have grown used to a higher cost of living. Investment income is best used in combination with the other methods below. Over time the income can really become significant and have a snowball effect.
Real Estate
Real estate income is closely related to what I categorized as investment income. I would consider the actual properties as investments, but I feel that the income earned from tenants should fall under a separate category. Real estate income requires a little more hands on work then investments. Unless a person owns a large number of properties they are probably going to be doing a lot of the work themselves. They would have to do property maintenance, actively collect payments, pay property taxes, market the property (if there are no current tenants), perform timely inspections of the property, and a number of other tasks. Real estate income ends up being more then just collecting a monthly paycheck, but a lot of the work could be done on your own terms and doesn’t require your active involvement. Scaling real estate income up to a level that would be considered a sustainable income requires either a large amount of money or a significant amount of risks (mortgaged properties).
Online Content
The most popular form of passive income is blogging. Some other ways to make money off online content include youtube videos, podcasts, affiliate market, and many many others. People that successfully earn a living by producing online content often use all of these tools together. In many people’s eyes income produced through generating online content is the dream scenario. It appears like the content producers earn money indefinitely and no longer have to work. It is true that this income is separate from the time you put into it. Bloggers are able to earn money in their sleep or while they are vacation. One thing that isn’t noticeable is that there is a lot of work behind the scenes. In order to earn income through online content there must be traffic. In order to get that traffic a lot of work has to be put in. In the beginning a lot of SEO has to be done and depending on the competition you would likely have to keep focusing on SEO from time to time. You also would need to keep pushing out content in order for people to keep coming back to the site. A lot of networking also has to be done in order to solidify yourself in the community/niche. Since the cost of producing online content is close to nothing, this is a very good option for many people to get started with.
Online Product Business
Many small businesses that produce online products can produce a large amount of somewhat passive income. One example would be mobile app development. If someone is able to create a successful iPhone app that income is very passive once the app makes it to the market. Once these products are built then it would be wise to continue spending time improving the product, doing marketing, and answering customer emails so that the revenue can keep coming in at the same (or greater) level. This income is similar to the passive income generated by producing online content. Both require a lot of behind the scenes work in order to market properly. It is also a good idea to have a blog for the product as well for SEO reasons, so fresh content is also needed. Out of all the types of passive income, creating an online product business is my ideal situation. Unfortunately, this might not be the best option for most people to start out with. It requires either a significant investment in time and knowledge to create these products or it requires some money to pay for those services. However, this is probably the perfect option for people that already have some passive income streams coming in. They would be able to reinvest some of their income in order to create even more of it.
Automated Business
Automating a business should be considered taking the business to the “next level”. The goal of any business should be: Automate, Automate, Automate! For a lot of businesses taking this next step requires a fundamental change in management strategy. If you are already running a successful business, the best way to make that business passive is to remove yourself from the business. Plenty of business owners would have a difficult time removing themselves from their business so this might not be the best option for everyone. You have to ask yourself what is more important, maintaining complete control over your business or giving up that control in order to let the business make money for you. In a lot of ways this type of passive income is really just turning business income into investment income. Your investment would be the company that you put so much effort into creating. Since most owners probably enjoy running a business they could simply try to create a new “investment” in their now free schedule. Eventually that business owner could become the owner of many businesses because of their willingness to automate their company.
