After buying everything for Christmas, I don’t know about you but I’m ready to find a better way to make some green. I mean yeah, I make a good living (though when my office just moved to a new location and I wasted $40 on cab fare getting to and from the office because I couldn’t figure out how to get there on the subway, it feels kinda pointless) but I could still use some income I don’t have to work for.
So Just what is Passive Income?
I find this particularly amusing. You see, whenever I write an article for Wealth Kept, I do some research to see what other people have said regarding the subject. It happens I do have a very clear understanding of what passive income but I still like to link to other authority sources.
Anyway, so here I was looking for other websites about passive income when I stumbled upon an article from the Huffington Post. Now to be honest, I know that Huff Post is not exactly a hard news source. I know that they tend to editorialize their news in favor of a very far left agenda. But at least I thought they had people who understood English.
The word passive in passive income means not doing anything. The idea behind passive income is that you do something once and then you keep earning money from it for the long haul. It’s the ultimate lazy way to earn a living and it’s truly amazing when you do it right. So tell me Huff Post, how exactly is working your butt off running a stall at a flea market passive income?
Heck, working a flea market isn’t even really income, at least not how they describe it. It’s just taking your old crap and selling it to someone else, usually at a loss. Now you will get some money for this so I suppose its income of a sort but it’s hardly passive income. You have to keep working for it constantly and that’s the opposite of passive income.
Okay, enough with my ranting. Passive income as I said, when done right is something where you invest or do some work once and then you keep making money for it for the long haul.
A good example is a blog post. I have one that I wrote years ago for another website discussing options for auto-responders (basically an email service which lets you pseudo-spam your visitors endlessly). I put in affiliate links to the four most popular auto responders.
To this day, I still get royalty checks for that one article because of people who signed up for the auto-responder. It’s not much – maybe $40 every few months but its money that keeps coming in and I never have to work again to get it. Now that’s passive income. Make enough streams of passive income like that and you can just retire.
Here are five great ways to generate truly passive income, the work or invest once and then reap over and over again way:
Of all the ways to make a passive income, this has to be the most brain dead simple way to do it. Basically, buy a piece of property and rent it out. You can even hire a management company to take care of running the place for you so that you don’t have to be bothered with pesky details like picking up the rent checks or dealing with broken air conditioners.
Of course, the problem here is green – you need some to make some. Okay, you actually need a lot to make a lot. You can get a loan from a bank to cover the majority of the payments of course but you’ll still need a down payment and you will have to worry about the possibility of vacancies.
So it’s not an entirely passive income but for most of us, real estate is a great way to get into the passive income game. Buy enough of the stuff and you can even start living large like our future president. Okay, not really – he did start off with a pretty wealthy father who set him up with some starter cash but hey, you definitely can make it big in this industry and once you do the initial work, you can be pretty hands off.
The downside? Large initial capital outlay along with the headache of worrying about vacancies, but hey, there’s really no such thing as truly passive income is there? Or is there?
I’ve always been a fan of Mark Twain. I especially liked the way that he had Tom Sawyer convince his friends to paint the fence and pay him for the privilege of doing so. In essence, Sawyer came up with a way to do the ultimate in passive income – he got paid for the privilege of having someone else do the job he was supposed to do himself. That’s basically affiliate marketing in a nutshell.
Affiliate marketing means that you create a product (or if you’re really a lazy SOB, you simply buy the rights to a product) and then you get other people to sell it for you in exchange for a cut of the money. How does this magic work? One of the big ways is through something called list building.
Basically, the idea here is that you build up a list of potential prospects and then sell your products to these people and keep on selling them products. Eventually, you get yourself to the point where you have a huge mailing list and they will inevitably buy whatever the latest and greatest product is that you want to sell to them.
If you get really good, you simply start sending out your products to other list owners and they sell for you and you simply reap the rewards. Basically, you pull a Tom Sawyer – you get someone else to do the work and you get paid for it. You can then re-invest your money to buy additional products which you can continue to sell for a fat profit.
The only catch with affiliate marketing is that you have to continue to find products to sell to other people. The good news is that as long as you are willing to pay for it, you can easily find quality products for sale which you can then re-sell.
If there is any kind of passive income which is both safe and stupid easy, it’s the index fund. There’s nothing simpler than plunking down a wad of cash and buying into a fund which invests in the stock market based on an index. It’s safe, simple and in the long term virtually guaranteed to get you an okay return on your money. No, it’s not sexy and it’s not going to make you rich overnight, but it’s a solid way to do this.
Basically, an index fund is a mutual fund which invests in an index. Mutual funds pool money from lots and lots of people in order to buy stocks. When you buy a share in a mutual fund, you in essence own a piece of a bunch of different companies. The mutual fund then is designed to allow you to purchase all these different companies at an affordable price rather than having to buy all the individual stocks.
So what’s an index fund? Well if you’re a new junky like me, you probably check to see how the DOW is doing and how the NASDAQ 100 is doing along with maybe the Nikkei and a few other indicators of the market. All three of these are groups of companies which have been assembled by experts to tell us how the stock market is doing.
The Dow or really Dow Jones Industrial Average is a group of the 30 largest companies traded on the New York Stock Exchange (the world’s largest) and NASDAQ (a competing stock exchange which is mostly for tech companies and smaller businesses). So the Dow includes companies like Apple, Microsoft and ExxonMobile.
Index funds simply purchase stocks in these thirty companies (or in the case of the NASDAQ 100, 100 companies and in the case of the Nikkei, the largest companies on the Tokyo Stock Market). The good news is that over time, inevitably, the value of your investment goes up and you make money from these indexes, even if you might lose in the short term when certain stocks go down.
The bad news? You do need to have the money to invest initially and of course, you’re not exactly getting super wealthy chasing the indexes, though you will make a nice, steady and safe (and let’s face it, boring) profit.
Invest in a Business
I know what you’re thinking (okay, well maybe I don’t – maybe you’re thinking about that chicken quesadilla you had for lunch and how it’s backing up on you), that investing in a business is not exactly passive income. It’s a lot of work to own a business after all – you’re the boss and you have to make all the decisions about the business.
Well, yes and no. If you were buying a business, you would definitely be on the hook for all the headaches that come with running a business, including dealing with crazy employees and having to worry about payroll and everything else. However what I’m talking about is investing in a business, not buying one.
Investing in a business often means being what’s called a silent partner. It means that you get to reap all the rewards without any of the work. You simply give your potential partner some money for a piece of the business and then you get to see money coming in every single day.
Of course, the problem with being a silent partner in a business is that you have to be able to trust the person you are in business with. They can easily rob you blind if you aren’t careful and so you do need to be able to review the books and feel there is a point of trust between you and the person you are working with.
Bottom line here is that you do need to do your homework but if you end up working with a reliable business partner, you will see the passive income coming in on a regular basis with pretty much very little work on your part. Of course, you also do need to worry about the issue of paying for the business, but as with anything, it’s a spend money to make money kind of a situation.
Make Money from Royalties
Okay, so you’re sitting there having read through nearly 1,800 words of text here and you’re saying to yourself that it all sounds great except for one small thing – I don’t have any money to invest to begin with. How the heck do you expect me to start earning passive income if I can just barely pay the bills every month?
Good question my friend. The answer is, you’re screwed. Well not really – there are ways to get into the passive income game without having to invest money but the thing is, then you have to invest time and talent. No matter what, passive income means spending something to make it happen. It doesn’t just happen like a lottery ticket (and even then you had to spend two bucks on an insane long shot).
The final way to earn passive income is through royalties. Kind of the same as the whole affiliate marketing thing but a bit different. The idea here is to create YouTube videos which will go viral (easier said than done – I’ve tried and I still don’t know what the heck it is that makes a video go viral) or maybe write a book which then brings in moolah every month.
The catch of course is first of all, you invest a sick amount of time and effort to create the product which gets you your royalties and then of course, you have to hope to God that somebody actually wants to spend money on it. So you’d better make it something worth bothering with – otherwise you’re just going to whine to me about how passive income isn’t possible.