5 Secrets About Passive Income

I’m a big fan of passive income, especially for writers. As a writer, most of the work we can find involves directly trading our time for money. Sure, we can write faster or raise our rates, but we still face a limit in how many hours we can actually work.

But the flexible schedule that many writers enjoy provides some definite opportunities to create income opportunities that don’t require nearly as much of our time, at least in the long run. Consider books — you have to put in plenty of time at the beginning, to actually write the book. After that, though, if you do just a little bit of marketing every week, you could continuing selling copies forever. I’m simplifying the situation a bit, but writing a book really is comparable to the classic passive income source — the rental property. You have to make a major investment when you buy (or build) a house. But beyond the occasional upkeep, like finding tenants or putting in new carpet, you keep making money.

There are some things you should know about passive income before you start looking for your own opportunities:

  1. ‘Passive income’ is a misnomer. In most cases, you can’t just plop down cash or time and expect a constant, consistent payout for the rest of eternity. A house will eventually need a remodel and a book will eventually need an update. Passive income is really reoccurring income.
  2. Financial instruments come the closest to truly passive income. If you really do want to just buy on-going income, your best bet is going to be investment opportunities: stocks, bonds, CDs and other financial instruments. Even these require some management — but significantly less than a rental property. You will need a significant amount of upfront money, though, to invest successfully. You can’t mortgage a stock to buy it, after all.
  3. Many businesses can be made more passive. There are many options to make any business more passive. A writer, for instance, could outsource certain parts of her business up to and including the actual writing. The paperwork may be more complicated, but you can free up your time without losing income.
  4. Any industry has passive income opportunities. Don’t limit yourself to your current niche when thinking about passive income. You may know a ton about writing, but that doesn’t mean that you should ignore investment opportunities. Instead, focus on the return you can expect for your time or money.
  5. Not all your income needs to be passive. It’s very hard to turn all of your income streams into passive income. On average, passive income streams don’t have huge payoffs. Instead, I recommend treating any passive income opportunity as a supplement to your day-to-day work.

The only other piece of advice I can offer about passive income is that the sooner you start, the better. You’ll earn more money over time than if you start looking for passive income options after exhausting your other opportunities.

4 Comments

  1. Andy   •  

    This is such a great article! I agree 100% and that is why I recently set myself a passive income goal, and will continue to do so. You can read the details on that goal and its geneis here : http://www.savingtoinvest.com/2008/05/new-goal-300-monthly-passive-income-by.html . Basically the goal is to have $300 of monthly passive income by the end of this year. The following are the ways to do it:

    Interest income from online high yield saving accounts (HSBC, ING, and Vanguard Money Market funds) – Current: $120 p/month. Year end target: $170 p/month.

    Dividend Income from funds and stocks in my portfolio – Current: $40 p/month. Year end target: $80 p/month.

    Blogging income (unlike the other income streams, this does take some work. Though I enjoy doing it!) – Current: $5 p/month. Year end target: $50 p/month.

    I am ahead on some of them and will be doing an update soon.

    Great to discover your blog as well! On my reader now.

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