Passive Income: The Basics

Passive Income Basics

What is passive income? Looking at it simply it is money that is working for you without you doing any work for it.
Although you will see those kind of statement everywhere it’s not quite true. There is no way you will get any money without working. There is no magic way to create money out of thin air, and even if you could, it would probably requires you to work to prepare the magic trick to do it! There are 2 approaches to passive income streams

• Upfront Work. In this scenario, you pour in a lot of time and effort to set up a stream that will generate money all by itself. A blog is a good example.
• Upfront Money. In this scenario you pour in a lot of money to set up a stream, this is called investing.

Upfront Work

You need to realize something about passive income streams, a lot of those Option 1 passive income projects will take a good amount of your time and will required sustained effort over a certain period of time before becoming passive. The real problem with that is there is no guarantee that it will actually work and bring you money.
Ebook, youtube channels, Blogs… there are all Option 1 passive income streams that are good example of a good level of effort required before making any money, but you need to persevere no matter what if you want it to become a passive income stream. I’m not saying that you can’t do it! You can do it! You need to realize that it’s not as easy as 1-2-3.
But if you want to start a blog, I have a really good and simple guide for you!.

Upfront Money

The other thing I need to emphasize about Option 2 passive income stream is that you will need to put a substantial amount of money for it to payback enough such that it is worthwhile.
Also, you need to know that the return on investment is not guaranteed either and there is a chance that you will loose everything.
Dividend Growth investing, Real Estate Thrust, Renting space are all good examples but each one of them may fail and end up giving you nothing. But wait… if it’s that hard or costly, what’s the point?

The Inner Working of Passive Income

The idea behind a passive income stream is that in the long run it will generate money all by itself.
All passive income streams requires some form of investment to start, be it time and/or money. Once they are set, some will requires additional work or money along the way, but the goal is that the money that it will generate be superior to the amount that was invested or that it generate extra income than if you would have worked those hours in a traditional day to day job. A blog or Youtube channel are a good example of those principles.

A good example

Here how it goes…
You’ve spent 500 hours creating a YouTube channel and making videos out of it over the last 6 months. You have a catchy subject and you have been able to attract a decent audience. This audience makes you, let’s say, 1000$ per month. You are now in passive mode. You invest about 5 hours per month to create new video and keep the audience, which is not that much in terms of effort.
Now that all this time has been invested, in the long run, you are working 5 hours to make 1000$ which is an hourly wage of 200$! That is pretty awesome if you want my opinion. And this is the reason why passive income is worth the investment of both time and money
BUT… there is always one… You need to understand that it’s not everyone that will spend those 500 hours on either a YouTube channel or a blog and make thousands of dollars each month.
You might not be making money at all… This is dependent on several factors:

• Marketing;
• Quality of information;
• Niche; and
• Other factors.

The Other Side of the Medal: Investments

On the other side of passive income, instead of time and effort you can use money. These are investment.
One of the best investment example is Dividend Growth investment. It’s an investing strategy that focuses on creating a portfolio of stocks that will constantly put money on your banks account without you having to do anything, hence the passiveness.
The basic idea is that you just need buy some shares and every quarter or month the company will pay you a part of their earnings based on the number of shares you own. If you want to know more about this easy and powerful investment strategy, here it is.

How to generate passive income

Now that the inner working of passive income have been laid out and that you started to understand the basics behind it, the interesting discussion can begin: How to generate passive income. The important thing to understand is that you need to leverage your work, you will be putting either effort or money at first, once the passive income stream has been set up and is running, you can earn money from the “original value” you have created without having to do it again and again forever. This passive income ideas can be applied to a great deal of business and ideas that can be read/consumed by a lot of customer without you having to invest more and more time. As such, with the right strategy and putting the effort and/or money anyone can build himself a passive income stream. You just need to pick an idea that is suitable to your lifestyle.

If you like writing, I would suggest that you go for a blog and for an Ebook, both might be easy for you. You could potentially develop a course and/or a Youtube channel in conjonction to your blog. The goal here is to be able to sustain it until such time that it doesn’t requires your input anymore.

On the other hand, if you have some spare money and you don’t want to go through the hassle of creating a passive income stream, investing would be your best bet. The beauty of this is that you are really doing nothing for that money, the company you invest in is doing it all.
However, just make sure that it’s money that you don’t need, as such you could leave it in your investment account and let it compound year after year.

Setting the passive income streams

Now that everything has been laid out in front of you, you are now ready to start some passive income streams.
You should check this list of passive income stream, or if you are more into investing, this should satisfy you.

What’s in it for you

The main take away from all this is that passive income is possible and it is actually worth the time and effort. However, be wary that it does require either a lot of work or money to make a significant income out of it.

That being said. I need to give you a very good piece of advice:
Be very careful if someone is trying to sell you a passive income related product, it’s easy for those people to play on the “magic” aspect of it. It was used multiple time in the past to create scams. If it sounds to good to be true, it’s probably too good to be true.