How to Make Passive Income

Want to lay on the beach all day and get paid? Of course you do!

In order to learn how we can passive income we first need to do 2 things:

Define “make money,” and Define “no work” First, let’s take a look at “making money.”The difference between residual income and recurring incomeResidual income is what we are after here. Any system that we set up once and that continues to pay us again and again over time is ideal. There should be very little involvement on our part to keep this system alive and running. For example, having a million dollars in a savings account is an example of residual income. The money keeps growing, without any involvement on our part (I realize you probably don’t have a million dollars laying around. Stay with me here though!)

Photo by The Wandering Angel

Recurring income is what you have if you work a regular job. You get a steady paycheck, but you have to keep sacrificing your time and efforts to make this happen. Our goal is to get away from working for this type of recurring income and find ways to generate residual income instead, thus freeing up your time to enjoy your life.

Making money is pretty self explanatory, but we also want to include 2 ideas here along with making money:

1) Spending less, and

2) Sound investing

More on those 2 later. For the most part, making money is making money….we just want to do it without slaving away our lives for 40 hours or more per week. Which brings us to our next word of caution about defining “no work.”

Caution: “Home based businesses” (where you work from your own home) are still WORK

We’ve all seen the ads and offers that promise you an “easy,” home-based business that is guaranteed to make you millions. The fact is, some of these home based business might really have the potential to make big money–but they are probably twice as much work as what you would put in at a regular 9 to 5!

Of course there are success stories with these types of programs, but the successful ones truly busted their tails and worked much harder than the average 40 hour work week would imply. This is not an example of what we are looking for here. The idea is more about gaining time freedom and the ability to live your ideal life, and less about busting your tail for 40 plus hours each week to make millions of dollars. We want a second income that doesn’t pack on the extra hours of work.

Don’t be fooled by easy or automated home-based systems. These are huge time-sinks that only sound enticing because you get to “work from home” in your pajamas. They neglect to tell you that you are aren’t going to turn a profit unless you bust your butt for 12 hours plus every day!

Leverage (getting others to work for you)

Ideally, you want to create some sort of system that generates recurring income in which you can some day remove yourself from the equation.

If you set out to make a new living for yourself, and find that your efforts are critical for the money to keep flowing in, then you’ve actually just created a job for yourself….not a passive income stream.

Of course, most any small business idea you develop is going to require at least some maintenance involvement on your part, and that is the bit of labor that you might eventually pay someone else to manage for you, once your business is profitable.

The beautiful thing about leverage and hiring people to maintain your business is that it allows you to pursue new ventures and find new passive income opportunities. Leveraging the work of others is a key concept in gaining time freedom.

You don’t have to run out and hire a team of people right away. For many passive income streams, outsourcing your labor might never even become necessary. But keep this idea in the back of your head, as a possible method in the future of expanding your income generating potential, without sucking up all of your time.

Specific ideas for generating passive streams of income

There are a number of ways to generate passive income streams. What is important is that you shift your mindset into one of building these types of income-producing assets, instead of trading your life hours for dollars.

Once you make the decision to invest in your future and build up some income generating assets, you will find the motivation to tackle one or more of these ideas seriously:

Internet Marketing – Create a maintenance-free and website that can generate sustainable traffic over the long term. Monetize the website (probably through the use of advertising). Learn how to make passive income with an authority website. Rinse and repeat.

Ultra-safe investing – Put your savings into low-cost index funds and make regular contributions to it. Index funds that mirror the stock market have always achieved at least a 10 percent return on your money when figured out over at least a 15 period.

Learn affiliate marketing – and set up a pay-per-click campaign to drive traffic to an offer on the internet. Get commissions and tweak the campaign to be profitable over the long haul. Keep building up a profitable internet marketing business. Rinse and repeat.

Vending machine income – Purchase a candy machine, stock it with candy, and then find an organization that will allow you to put the candy machine at their establishment. Collect the profits regularly and restock with more candy.

Write and sell an eBook – again, this is doing work up front to set up a neat system of residual income.

Real estate – this can be too risky and expensive for some, but if you own property and rent it out, you can make residual income.

Royalties – write a book and get paid royalties.

Patents – invent something useful and get royalties.

This is not a comprehensive list, but only a small sample to get your brain kick-started. Some of the ideas on the list should really be used by everyone though, such as the index fund investing through Vanguard.

Remember, even if one of these ideas only produces a small trickle of income at first, stick with it, and try to expand into developing more income streams. Eventually, several streams of income will combine to create a truly sustainable lifestyle for you….one without any “work!”

Long term complimentary strategies: Investing and Frugality

Investing is the idea of putting your money to work for you, so that it can build and grow over time.

Frugality is the idea that you are not going to spend frivolously. This does not mean you will be cheap, or live like a pauper. Instead, frugality is about maximizing every dollar that you spend, and making mindful, meaningful purchases.

Investing makes your money work for you.

Frugality keeps you from working to get more money.

“A penny saved is a penny earned.” This is more true than you realize. Instead of wasting money on frivolous spending, dropping it into a low cost index fund (such as those offered at Vanguard) will give you a much greater return than simply “saving money.” Instead of accumulating more junk and “stuff,” your money can start growing and working to free you in the future.

Combine these principles with passive income streams and you have a very powerful strategy. There are plenty of people out there who make really high incomes, yet they are always close to being broke. They spend, spend, spend, and continue to rack up debt. They have a huge mortgage payment each month. They buy way too nice of a car with really high payments and high insurance.

These people have to work, because they have bought their way into a life of debt based on their high-paying job. Now they have to work.

A sound strategy is to practice investing and frugality so that you are maximizing each dollar that you gain and invest. Combine this with a few passive income streams, and you can gain true freedom within just a few short years.

How this strategy builds on itself

Once you get rolling with the strategies discussed here, everything will slowly start coming together. Realize that frugality is important, because if you spend everything that you make each month, and you’re working a full time job, then there is very little time and money left over with which to build a passive income-generating asset.

Practicing frugality will allow you to start investing both time and money in your own future. Start investing with low-cost index funds and put any money you save towards it. Stop spending frivolously and work on setting up your first passive income stream. Pretty soon you will find financial freedom.

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