I am often asked how I have managed to create a passive income that allows me to pay my monthly bills without actually doing any work or very minimal work. Over the years, I have experimented with a wide variety of different methods to automatically provide me with some type of regular earnings without direct or ongoing involvement. I have found some that work great and others that are just a waste of time, so I've put this post together to help guide you to make the decisions that are best for you.
Unless you have a large amount of money sitting around waiting to be invested, you'll probably need to set long-term goals for yourself to generate a passive income. Some people may need to spend their entire working career to truly earn enough from passive investments to replace their normal wages. Fortunately, there are ways to speed up this process to get there much faster. It is possible to passively earn enough to completely quit your job and just live off of your investments. It's just a question of how long it will take to achieve that goal that can vary from one person to the next.
No Investment Passive Income
Contrary to popular belief, it actually is possible to make a passive income without investing any or very little money to get started. The catch is that it requires a lot of time and hard work to make it happen. So how it that passive? Eventually, you could stop working and the work would continue to earn money for you each month. Some people manage to do it in a few months and for others it takes years or never happens at all. However, some people succeed at turning this into a long-term passive income that blows away earnings from their normal job.
This is most easily done online these days, since you can build a website and it will continue to operate for you 24/7/365 whether you're actively working on it or not. For a truly passive income, you're going to have to earn money from website traffic off of advertising or sell products.
Product sales can be physical goods that have to be shipped to a customer. However, you should promote these offers as an affiliate for truly passive income otherwise you will have to invest in inventory and ship products to customers. Digital product sales, like writing a book or selling an online training course, are a perfect option for passive income. You do the work once and continue to earn from it without your direct involvement.
Do you really want a truly passive or just a business you can run to replace and even improve your job's income? The best passive incomes online are actually semi-passive since they operate the best with some ongoing work on your part. For example, you can earn passive income from a blog. That same blog will make more if you don't stop work after it becomes popular and continue to post new content to grow the site. You can still dedicate a fairly minimal amount of time to the work each week to boost the earnings and earn a partially passive income this way.
Passive Income from Large Investments
For anyone that has a lot of money to invest, usually $1 million or more, they can very easily make a full-time income with that money without any ongoing work. However, most of us are not fortunate enough to be in that type of position. If you do have that kind of money, talk with an investment professional to help achieve your goals for the best results.
There are a number of ways to instantly generate an annual income of $50,000 or more with a $1,000,000 investment. Stocks that pay dividends of at least 5% annually will provide you with those earnings. Many cryptocurrencies offer staking rewards these days and can pay 5% or even more when you buy their crypto coins and let them hold your investment.
Other options such as bonds will pay much lower yields, sometimes only 2-3% or even less depending on the state of the economy (rates are not great right now). You may wonder why some people would purchase these options that pay less and therefore seem much less attractive as an investment? The real reason is risk. Depending on your financial goals, you may be more or less willing to have risk with your investments.
Bonds offer almost zero risk because you get your investment back at the end of the term plus the interest as your profit. With stocks and especially cryptocurrency, the value of your initial investment will change over time. The value can rise significantly but it can also fall significantly. Let's say you invest $1 million in a dividend paying stock for a year. If the price of that stock loses 50% in a year, your investment will only generate half as much for you the next year.
Without a large investment to use to get started or regular investment over the course of your entire working career, the most reliable method is by creating your own business. This is certainly not passive income in the beginning and may even cause you to lose money initially. If your ultimate goal is a passive revenue stream then you can plan accordingly to replace yourself in the business with an employee once you can afford to do so.
Almost any type of business can transition into an automated revenue stream eventually. As long as your work in the business can be replaced by someone else, you just need an employee or a partner to make it truly passive for you. In general though, you will have to commit time and possibly money to create and build your business though, so if you aren't willing or able to do this then avoid this approach.
If you do plan to replace yourself in a business that you create, make sure you thoroughly think it through from the very beginning. This blog that I'm writing could be turned into a completely passive income stream, but it would be easier to do if my name wasn't attached to the website, at least not as prominently as it is now. The other thing to consider is whether an employee that you hire can do the same job at the same quality level that you do it.
My writing here is based on my personal knowledge and also requires good writing skills and knowledge of certain website building strategies. It would be possible to replace myself in this business, but it would require a special type of person and likely a good pay rate to do it. I would risk downgrading the quality of my content. The audience that I had built over time would slowly disappear under new management if they didn't do a good job. I'm not creating this blog for passive income, but it does make a good example to use for someone that is considering building a website-based business to generate automatic revenue.
Job Replacement or Retirement Passive Income
What are your passive income goals? Ultimately, everyone should have one because once you reach retirement age you basically live on passive income or else you have to draw down from a savings account a certain percentage each year. At the very least, if you can take a hundred or a couple hundred dollars from each paycheck and have it automatically invested for you, you can build up a very nice automated income for yourself by retirement age if you continually contribute to the account for your entire working career.
If you regularly invest in dividend stocks starting in your 20s or early 30s and have your dividends reinvested, you can begin cashing out your dividends once you reach retirement age and will receive very nice payments by that time as long as the value of your investment has increased over the years.
With determination and perseverance, anyone can contribute to a retirement account and create a good income eventually. Many people want to be much more aggressive and achieve this feat at a younger age these days though. This can actually be done but it will require hard work, a lot of investment income and/or very aggressive investments over time to reach this goal. If your goal is to replace the income from your job and retire early with a passive income, you need to make a serious game plan. Be sure to do your research to ensure that your investments will continue to provide you with your estimated earnings long-term.
Long-Term Passive Income
A good example of investments that may potentially fail to provide long-term earnings include regular businesses, online businesses and even dividend stocks. Ultimately, there aren't many ways to earn from your money that don't involve any risk to your initial funds. You can at least attempt to plan for these risks to mitigate them to a level that you are comfortable accepting.
If you create a business for revenue, consider beyond the immediate earnings and expenses and think down the road. After 5 years or even 10 or 20 years, will the business still continue to operate in the same manner without additional investment?
A fairly simplified example is bitcoin mining. There are actually companies that will host your mining machines for you and maintain them. You can just sit back and collect a check each month. The profits from that type of business are not straightforward though. Each machine costs a lot of money to purchase and then ongoing funds for electricity to run them. They make more than they cost to run. However, they also have a limited lifespan. You will also need to purchase new machines over time to maintain the same level of earnings.
If you invest in that type of business and expect the earnings to continue forever, you can't drain all of the profits each month. You should reinvest a certain percentage of your earnings to keep the investment strong. Most businesses will require ongoing investment to keep them health. Make sure you consider these long-term expenses when you're calculating true profits and deciding how much to spend from your monthly profits.
See our Side Hustles category for much more information: Side Hustles.