What is Passive Income and How Do I Create It?

Growing up, I was taught that the secret to success was going to an excellent college and landing a high-paying job.  I followed this formula to a tee. I went to graduate school and entered the field of education. As a classroom teacher and school building leader, I found an immense amount of joy and satisfaction from my work.  Although it wasn’t the highest paying field, I never starved. In fact, I had all of my needs met and indulged in many of my wants.

So for close to two decades, I fully subscribed to this active-income model as being the sole method for financial success and career fulfillment. In exchange for my time, I would be compensated with money.

But this model started to feel stale and confining when I desired to have more control over my time: I wanted to spend more time creating, travelling, and with my family.  I realized I was becoming money-rich and time-poor, which was becoming unequal exchange. Money, not time, is the ultimate commodity.

After reading books like Rich, Dad, Poor Dad and Money: A Love Story, I updated my formula to success to include a passive income model.  Passive income is money you make without having to show up to a certain place for a certain period of time to earn it.

[Tweet “Money, not time, is the ultimate commodity.”]

How to Create Passive Income

Passive income requires you to do the heavy lifting upfront before you’ll see a return on your investment. Here are five easy forms of passive income that don’t require you to exchange your time for remuneration. In some cases, these passive models create residual and recurring income. Residual is income that comes in over and over again for work you’ve done once. Recurring is similar to residual income in that it comes in over and over again for one set of work. The only difference is that payments for recurring income come on a set timeline.

  1. Write an e-book or a book.  You can write a short e-book or a lengthy novel once and receive royalties for decades.
  2. Invest in the stock market. If you have some extra money laying around, leverage it so it can make you money.  Speak to a financial advisor, research how to get started with peer lending, or take the robo-investing route with a service like Betterment.
  3. Rent.  The conventional advice is to buy a piece of rental property. That’s an excellent way to go if you have the money to offset the initial costs of repairs, mortgage, and insurance. If you’re not able to start making passive income through home rentals, start by renting a room in your home, a parking spot, or even underutilized baby gear.
  4. Become an affiliate. They are a ton of companies that will compensate you for spreading the word about your experiences with their products as an affiliate. Sites like ShareASale and Amazon Affiliates are two places to begin the process. You can market via your social media platforms or your email list.
  5. Start a business and let others run it. You can purchase an existing business (storefront or online)  or start your own.  If you’re looking for low-cost startups ideas, check out Chris Guillebeau’s $100 Startup.  

Being SMART about Passive Income

I was at a networking event for financial bloggers where the topic of passive income came up. One financial blogger Shay was exhausted by her freelance work. She was writing at least 20 articles a month for various online and print publications and wanted the madness to stop. She proclaimed, “I want 30% of my monthly income to come from passive methods.”

This conversation stuck with me because of the specificity of her statement. If you’re thinking about replacing a portion of your active income with passive streams of income it’s important to be as precise as Shay’s. Ideally, when creating a goal as lofty as creating passive income, your goals should be S.M.A.R.T.—specific, measurable, accurate, realistic, and time bound.

To make my Shay’s passive income goal S.M.A.R.T.er, we could make it and more measureable and time bound. Let’s assume she makes $10,000 a month as a freelance blogger. We could rewrite her passive income goal to say that she will create $3,000 in passive income through 5 affiliate partnerships and one online course.

Getting Active with Passive Income

Passive income is not easy money, but it is easier money.  If you find that you want to free up your most valuable commodity, time, passive income will allow you to do so while still offering you financial security.  

Are you ready to start building your passive income? If yes, then learn exactly how to make $1k every month with your blog while still working your 9-5.

If this post really resonated with you and you want to transform how you feel and think about money so you can live your best life, consider ​money therapy​.

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