A Guide to Passive Income

Thanks to social media gurus, the name alone conjures up images of a life spent lounging on the beach drinking fruity drinks and working only when the mood strikes you. Passive income, a dream come true, right?

Except there is more to it than you would think! A passive income stream is any form of money you make without actively working for it. Passive income has accumulated a lot of attention in the last few years and with reason.

You might be wondering what the benefits of passive income are and how to get started.

What is passive income?

Passive income relates to money you would make from work even if you weren't working at it for the day. 

The main goal of passive income is not to do any work and earn money, but just let your investments or company run on their own and give back a profit.

It means you're making money without active engagement. You're making money without doing anything in addition to the initial investment you made. That first investment could be time and effort or money.

What is the difference between active income and passive income?

Active income is money you get from your job. In contrast, passive income is money, such as an upfront investment in the stock market or real estate, that generates extra income without additional work. 

Passive income does not rely on constant work and effort by the person who earns it to generate more revenue.  The revenue is in the form of passive financial gain.

What are the benefits of making passive income?

Earning passive income has seen a surge in interest recently, and there are many benefits to be gained from it. 

One of the best reasons might be that it's less reliant on your paycheck coming in. 

Once you start making passive income, you get to control how much money you spend each month and where your priorities lie constantly worry about what would happen if you lost your job. 

Just knowing that additional income is coming to your wallet means that your paycheck has less power over you!

It brings an element of financial freedom that is hard-won by most and almost impossible for some; living paycheck-to-paycheck. 

The key benefit is the sense of peace and mental clarity that results from controlling your financial situation.

It takes planning and effort to set things up, but if you are successful, then passive income is a great way to make your money work for you and not the other way around.

Here are 5 benefits of earning passive income:

• Less reliance on receiving a paycheck

If you have passive income, you don't need to worry about living paycheck-to-paycheck or not having enough funds. Your passive income works for you even when you're not working.

• Earning more money in addition to your salary without working more

Passive income is a way to earn money without working more. Some great examples include investing or renting out property like real estate. 

It allows you to make extra cash on the side, meaning more savings, more investments or greater quality of life.

• The ability to work less

It provides an additional steady stream of income that could allow you to make more time to engage in your favourite activities. 

• More financial stability

Passive income allows you to achieve financial stability much faster. You don't have to work for the money, so you have a cushion that guarantees that your finances are in order.

• A chance at achieving financial freedom

It helps you achieve the ultimate dream: financial freedom. The more your passive income source(s) increase over time, the closer you are to being financially free to focus and spend on things that matter to you.

Which is better: passive income or active income?

Active income is not as sustainable because it requires consistent effort and extra work to generate. 

Unfortunately, most of us do not get to work our dream job with the best benefits, conditions and hours, which leaves little time for us to enjoy life, spend time with family and friends or develop new skills that could lead to more opportunities.

While passive income does not guarantee financial security, it is more sustainable and offers more opportunities. Passive income can help you reach your financial goals faster.

However, it's only after you've generated a significant amount of passive income that your life begins to change.

It is much harder to set up stable passive income than earn active income by having a salary.

The truth about passive income

Passive income takes a lot of time and effort to get started. It becomes more likely as you invest more of your resources into it.

People often wrongly think that passive income comes easy. They couldn't be more wrong! It does not, and it is never guaranteed as it requires a lot of time to set up.

Whether you are trying to monetize your blog, Youtube channel, become an influencer or earn income through investments in the stock market or real estate, an initial upfront investment is always required. It is the most challenging part of setting up your passive income.

You don't need to quit your job while building your income stream(s); you should utilize both types of income as this will help you take control of your finances. Your extra activities, or "side hustle," will generate a side income that you can re-invest into them or spend on essential expenses.

Most people generate their passive income streams while working their day job to cover all their necessities and consistently build their passive income stream(s).

Through the compounding effect, you can generate your additional income stream with time and consistent effort, and it can completely change your life. This makes this quest for passive income completely worth it.

Even if you cannot live off the income you earn passively, extra cash always helps you achieve your financial goals, whether to accumulate more savings, create an emergency fund, or have more "fun money."

What are examples of a passive income stream?

Stock investments

In most cases, stocks are a great example of passive income. A typical example of passive income is stock equity or stock dividends from stock investments.

While investing in stocks may be a great example of passive income, they are not always guaranteed and do take time to accumulate. 

Stock investments can take a considerable amount of time to build up, but the results can be pretty rewarding when you start making money from your investments.

Additionally, stock investments can be more convenient as they only require you to set up an account in a brokerage. 

Once you've opened an account, you can pick your stock(s) or fund(s), monitor their stock prices and stock market conditions and sell your stock(s) whenever you want.

You get to rebalance your stock portfolio (or stock holdings) or continue holding and accumulating your favourite stocks. The choice is yours, and that's about it.

However, you will need to do proper research before buying individual stocks. Or you could invest in index funds that require minimal effort to manage!

Blogging

Another great example of a passive income stream that requires consistent work is having a blog. 

While blogs may not necessarily make money immediately, they can be an excellent source of passive income if you can get a steady stream of traffic to your blog.

Bloggers who focus on creating quality content for their readers based on research and in-depth analysis are the most likely to succeed. 

Their articles drive constant traffic to their website or blog, which eventually turns into subscribers.

This will then open up opportunities for affiliate marketing programs, product placements, courses, and more.

The challenge with blogs is that nothing is guaranteed. It may take a very long time for it to generate any income for you at all.

Youtube

Youtube channels are another example of active income that can turn into passive income after a while. 

A YouTuber who can build quality content that people value will also have the chance to monetize their content and get paid through various sources such as advertising revenue, affiliate links, and selling their own merchandise, courses or other products.

Just like blogs, it requires an extensive amount of consistent work for it even to generate income.

Real estate

Real estate investing is another type of passive income stream. It is an excellent strategy and one of the most commonly chosen paths for building wealth. 

It requires an initial investment to purchase a real estate property, but there is much more room for leverage. There are many options depending on whether you decide to live in it or not. 

If you don't plan to live in it and rent it out, the tenants will be the ones to pay for your mortgage or part of it! 

This means that not only will your house be paid for by others, but you'll also build equity as the value of the house increases! So you keep your money and can contribute to even more investments or properties over time.

Achieving this requires you to save up enough money to buy the property first, and it takes time to start earning from your first rental property. 

However, you've made the initial investment; you will be able to benefit from the leverage and passive income built through your rental properties.

Real estate is one of the best examples of passive income, but given the current housing market, it may be challenging to enter. It can also require a substantial amount of time to deal with repairs and house-related issues of your tenants.

Tips to generate passive income

Here are 5 tips for you to generate passive income:

1) Develop a valuable skillset

If you have the skills to do something very well and charge other people to pay for your services, then you can be on the way to starting a passive income stream!

Once people start paying you for your service(s), you can take the money saved and invest it to generate even more passive income or use it to boost your lifestyle. 

The best way to start this is by developing a skill that people are willing to pay for. This could be anything from web design, graphic design, writing, coding, training courses and so on! It all depends on what you are good at.

2) Leverage your skillset

If you have already developed a skill, it will be easier for you to continue generating passive income.

For example, if you are good at writing. You can take your writing skills and offer writing or copywriting services. You can also start a blog and write books.

In the same way, if you are a great speaker, love making videos and are knowledgeable in specific topics, you can create a Youtube channel or start producing online courses, and you can sell them on sites like Udemy.

Your skills and interest are vital in determining what kind of passive income stream is best for you.

3) Build a website or blog

Another way to generate passive income is by building a website or blog.

Websites and blogs are perfect examples of passive income because it requires little maintenance. Once set up, you don't need to do anything else aside from adding new content periodically!

For example, if you are a web designer, having your website that showcases your work and services would be great instead of just having LinkedIn or Facebook as these may not come up in search results!

In addition to this, you can eventually monetize your site through advertising revenue, affiliate programs, or even selling your very own products!

4) Invest your time and money in passive income streams

The most important thing to do if you are not earning passive income yet is to invest your time and money in them! You will never get to build any of it if you don't start, so get going!

5) Focus on a few income streams

The best way to start is by investing in no more than two passive income streams at a time so that it doesn't become overwhelming.

Remember, passive income streams require time and effort to build up so it would be better if you focus on just one or two until they are set up. Spreading yourself too thin will not allow you to maximize the potential of your income streams at the beginning.

The Takeaway

Passive income is a valuable resource for many people looking to grow their wealth and invest in themselves. With this in mind, you can start earning passive income by leveraging your skillset or investing time and money into one of the different options discussed above.

Of course, these are just some ways to earn passive income and you can look into other options. But, the critical part is to earn passive income is to begin and focus in on one or two streams that interest you.

If you follow these steps, it will be easier for you to make a significant amount of passive income!

The more work you put in now - whether it's developing a skill, building a blog or a youtube channel, investing your time/money in the right activities will only lead to more success later on!