What is Passive Income, and how do you get it?
Do you want to make money while you sleep? Pretty much every video or article about “Passive Income” starts with this alluring question. And why wouldn’t they? I think all of us want the maximum benefit for the minimum effort. Earning money while putting in literally zero effort, because you’re asleep, is the equivalent of an infinite benefit to effort ratio. This is especially attractive during COVID, when so many are out of work. An income source that can't be taken away seems pretty great, right about now.
But there’s a catch, right? There’s got to be a catch, because my dad always told me that “if it seems too good to be true, it probably is.” And money for sleep definitely seems like it belongs in that “too good to be true” category. As I fall into the category of “everybody” who would be interested in such a proposition, but also of a skeptical nature, I decided to go down the rabbit hole of passive income so I could score some of this sweet, sweet lazy money, but also then share it with you, so you don’t have to do the same work.
Passive income seems to fall into several different categories, from little difficulty to lots of difficulty, depending on your natural talents and interests. On the easy end of the spectrum are dividends from stocks, bonds, and real estate investment trusts (REITs), which are like stocks but you partly own a bunch of rental income producing buildings with a bunch of other people. Once you buy an amount of these, you get regular payouts. The effort comes in two areas, you have to earn enough extra money that you have cash to invest, and you need to learn enough about investing that you don’t get taken advantage of. And there’s some risk, if what you invest in loses a ton of value or even goes bankrupt. But after you decide what to invest in, and arrange your life so that you have extra money to invest in these dividend yielding products, it can be pretty much “set it and forget it” where you get a check every month or every three months for literally doing nothing. The other draw back is that dividends are often between 1.6%-5% of the investment per year, so in order to make a significant amount of money, you need to have invested quite a bit, or give what you invest a long time to compound.
Other, less passive forms of passive income are things like being a landlord, where you own a property and rent it out to someone else, but then you have to deal with the tenants and keeping the property from falling apart. You also have to know enough about real estate to know how to get a good deal that actually does make you money. When you get that all sorted out, though, you can make a lot of money from real estate, so the up-front investment of cash, if you get a mortgage and then let someone else pay it off, can be lower than getting dividend paying stocks/bonds/REITs for a similar payday.
Then you get into things like having a successful blog, YouTube channel, or podcast, which can keep paying you money long after you create the content if you have good numbers and advertisers want to use your content to help sell their products. To me, though, this is not very passive, because you have to go through the trouble of creating all the content in the first place and then do site maintenance, interact with fans, etc. But if you’re very good at creating content people like and that appeals to advertisers, you can make huge amounts of money this way, even long after you stop writing or making videos. Now could be a great time to build one of these, if a sudden lack of a job has left you with a surplus of time during COVID.
Similar to this, but not exactly the same, are online products like trainings, books you write, or music you produce. If you have a particular knowledge set that can help others, and you know how to create useful classes, you can get a lot of money by selling these classes online. Self-publishing books on Amazon or other platforms can also turn into a passive income stream, once you have the book written. But just like the category above, creating this content takes a lot of time and effort, so how passive is it really?
If you notice, none of these are “people pay me money for sleeping”. All of them take a lot of effort on the front end. Instead of passive income, I think they should be called “front loaded income” streams. Personally, I have several of these sources, and they took a lot of work to set up and get to a level where I notice the money I get. Don’t get me wrong, they can be massively useful, especially if you lose your job or your career gets automated or outsourced. Having your proverbial eggs in as many baskets as possible can save your bacon!
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