The Definition Of Passive Income
By Jaden Miller , July 28 2021
Since the launch of Tim Ferriss' Four Hour Work Week, "passive income" has been regarded as an aspiration that if you can get it, you will be free to live the life you want. A quick Google search will bring up websites (some good, some downright mischievous) that claim to teach you how to use passive income to "make money while you sleep.
If you are starting or have a small business, it may tempt you to get some of this Holy Grail action. But, before we do that, let us take a step back and look at passive income definition, what they are doing, and how it works?
What Is Passive Income?
First, let us look at the income that most of us earn: active income earning. Regardless of whether you are employed or self-employed, you will receive money for the work you have done. Most of the time, the more you work mentally or physically, the more money you will get for it. On the other hand, passive income means the idea generated by itself - you have nothing or at least not do much.
There are different ways to generate passive income: through financial investments (in securities, real estate, etc.), product sales (for example, a book or photos), or renting out your property. You can find out more about the various possibilities of passive ownership further. Many of the ideas do one or more of the following.
Therefore, your idea can easily be multiplied and sold accordingly often
The "operation" can easily be automated
The product or the like does not need to be maintained and updated, or only rarely
Your idea is timeless or at least long-lasting
There is little competition
Advantages Of Passive Income
Earning money around the clock without having to do anything not only sounds good, but it also has certain advantages, for example:
Since the money is earned by itself, it doesn't matter where you are and when - in theory, you could go on vacation all year round and generate passive income. Suppose the passive income is an additional income. In that case, this may give you freedom in your actual work, such as reducing the weekly working hours or starting your own business without relying on money from others.
More Free Time
Maybe eight hours a day will turn into just six hours of work, or a five-day week into a four-day week. Thanks to passive income, you can use the free time you gain for the things that fulfill you - be it family or a hobby.
Depending on the idea with which you generate passive income, you can build up long-term assets you can use for retirement provision, for example. This is especially true if you not only finance yourself with passive income but also earn money conventionally.
Disadvantages Of Passive Income
Where there are advantages, there are usually disadvantages as well. Note the following points in passive income:
Little Planning Security
While with active income, you often know what you will get for your work, with the passive variant, you can never be sure how much you will get in the end. Nobody knows how stock markets will perform or how often you will sell your created product.
Financial And Time-Related Advance Payments
Nothing comes from anything - this also applies to passive income. No matter what idea you want to earn money with, invest time and money in advance without knowing whether and how successful you will be.
Risk Of Loss
Especially when it comes to ideas with a high financial (preliminary) effort, consider that in the worst case, you can also lose money. For example, if the share price crashes or the property you have bought does not develop as expected.
Suspicious Business Partners
The tempting term "passive income" also romps about many great-sounding business ideas that are just out to rip off your deposit/investment. But, unfortunately, every year, such pyramid schemes are invented, and they betray people. Therefore, if someone raves to you they have ended up in the paradise of passive income just because of some paid-in money, be skeptical and ask the consumer advice center or Google a little more carefully how many complaints there are already about the offer.
Always weigh the advantages and disadvantages carefully and check whether and how the disadvantages, in particular, can affect your current life situation. For most normal earners, a passive income is initially just a financial bonus but not the only way to earn money. At the end of the article, we reveal more detailed tips and what you should avoid around "passive income."
Is Passive Income Possible Without Start-Up Capital?
The quick answer of whether you can generate passive income without starting capital is yes. As described in the previous paragraph, invest either time or money (usually both) to turn an idea into a real source of income. If you want to sell a product, it has to be planned, produced, and tested at least once. An example of what is perhaps the "easiest to care for" and the fastest to produce a product for a passive income is a photo that you make available for download on online platforms for money.
You don't need any capital for this, but you need some time. Admittedly, you will probably not get rich with it. Writing and publishing a book is significantly more time-consuming and costly, especially at the beginning. However, if this is successful, you have opportunities here to earn good money.
If you have little time but a lot of start-up capital available, you can invest in securities (stocks, bonds, etc., but also all types of investment funds) or real estate. Especially when investing in securities, you have practically no time spent - except maybe reading into the matter. For this reason, we often see financial investments as the purest form of passive income.
The following applies here: the higher the start-up capital, the higher the passive income can be. However, depending on the risk of your investment, you can also lose a lot of money.
8 Ways To Generate Passive Income
After all the theory, it now becomes concrete: What options are there to earn money on the side without a lot of effort? In the previous paragraphs, we already mentioned a few examples we want to take up again here in compact form:
One solution to get a passive income is Affiliate marketing or affiliate marketing. It involves lead generation, i.e., contact with a potential customer for a service or buyer for a product, which will be turned over to the merchant who will finalize the conversion. There are three macro-categories of structures for online lead generation:
Content Marketing And SEO
The first involves creating a vertical content site (it can be a blog, a showcase site, or even a forum) that will attract users through organic marketing or positioning on search engines. Next, the optimization work takes the form of SEO (search engine optimization), a complex technical and content analysis system aimed at improving the ranking (positioning) on Google, Bing, or Yandex for certain keywords.
The second involves using social networks to convey content to a target of users, potentially willing to purchase goods related to the specific context.
Lead Generation Through Paid Marketing
The third macro-category is the one that provides for greater scalability of the strategy. It is about attracting users by exploiting the potential of paid marketing such as Google Ads, Facebook Ads, Bing Ads, etc. It is possible to create a funnel or a path that comprises several steps or send users directly to the conversion page of the company with which we have an affiliation agreement.
As long as we do not reach the market's saturation, we can scale a strategy with a positive ROI (Return on Investment) because if by investing 20$ we get 30, we can easily invest 100, and we would most likely get 200. Several companies offer affiliate marketing. Some are more complexed, others easy to manage. To start, it is certainly a valid solution to test the affiliate service of Amazon and eBay.
Make Videos On YouTube
YouTube videos are rapidly gaining popularity all over the world. No matter what kind of video you make, you will surely get thousands of views in minutes if the content is of high quality. You can post whatever you want, funny videos, streaming, gameplay, music videos (keep in mind that many listen to music on YouTube), and anything else you can imagine. The YouTube community boasts billions of people, so you can be sure you will never run out of the audience.
With YouTube monetization capability, you can also receive donations from those who follow you and watch videos. YouTube, therefore, proves to be one of the best ways to earn passively.
Selling Products Through E-Commerce
Another method to generate passive income is the sale of products online or through e-commerce. This solution is certainly complex both from a technical point of view and from an investment perspective. First, we have to decide whether to create a proprietary e-commerce platform or to rely on third-party platforms.
In the first case, we have to invest time and money to set up our site, preferably using a CMS like WordPress (with WooCommerce) or Magento, and also take care of marketing to attract users.
In the second case, we would take advantage of portals such as Amazon or eBay, which, if, on the one hand, we have no implementation costs, we will have fixed costs on transactions. The biggest problem is the investment costs to stock up, buying products in advance. To overcome this problem, you can set up a drop shipping sales strategy.
Dropshipping is a system that allows the customer's purchases to be diverted directly to the supplier without having to stock up. It will then be the manufacturer to send the product directly to the customer. The store manager will marginalize the difference between the cost of the supplier's product and the cost to the end customer.
Sell Stock Photos
If you enjoy taking photos and editing images, selling stock photos can be ideal for making money. There are now many platforms on which we offer images for sale and purchase. Here you can upload your pictures and receive a share of the profits for each picture sold. The same goes for stock graphics.
Just owning real estate does not allow you to generate passive income. Real estate only becomes interesting as a source of income if you do not use it yourself but let it to others. Regular rental income generates a relatively high-income stream for you. Returns of around five percent are possible here. Of course, this assumes that you can afford to invest in real estate.
Monetize The Blog Or Website
If you have your website or blog, you should not miss the opportunity to build or generate passive income with this. For example, you can place advertising banners or collaborate with other companies and promote their products. Of course, this works best with products that fit your website.
Write A Book
Books are one of the classic ways to build a passive income. These are associated with a lot of work and creativity in advance. However, when they are done, they can still be sold years later, and you can generate passive income.
A passive income is a great way to make money without committing. And it can allow you to earn even more than your main job. Some passive income methods are so effective that they have allowed many to build a career in their own right. All you need to do is dedicate a couple of hours a day to your major occupation and enjoy your passive income.
If you need to generate your proof of income, be sure to use the pay stub maker online. You may also want to check out how to make the most of your money by saving much on groceries shopping.