Two Ways to Build a Passive Income

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The term “Passive Income” is thrown around quite a lot these days, but I feel like many of us don’t really have a good handle on what it means. In short, it basically means that you’re getting paid for an action that you took a while ago. In other words, your payment is not dependent on the number of hours you put into your work. Instead, you are getting paid because you set up a system of wealth creation in the past, which may be recent or many many years ago. In order to receive this passive income, you would have to choose one of two options: either you would (1) invest your time, or (2) invest your money.

Invest Your Time

Since many of us don’t have tens of thousands of dollars to invest, the only thing of value that we have is our time. And, whether you think so or not, your time is incredibly valuable! For most individuals, they place a very low value on their time, which is why many waste their evenings plugging into the television or hanging out with their loser friends at the bar. But, what many do not realize is that the value of your time should not be calculated on the reality of your life today, but by what you could make of it in the future!

After many people clock out of work, they realize that they are no longer making money. Therefore, their time outside of work is of no value. No matter what they decide to do (whether it be bowling, drinking, or just watching TV), they will still be earning the same amount, which is absolutely zero dollars. So, what they decide to do with their time seems ambiguous. At this point, instead of placing value on your time, it’s just much easier to value your time by how much fun you have. This is the poor person’s mentality.

The wise man (or woman) realizes that their time should be valued at their potential. If they spend 4 hours each evening catching up on their favorite Friends episodes, how much value have they added to their lives? Pretty safe to say that they’ve added no value. What if they instead read an entire book on how to start their own business for less than $500? I would say that that time spent would have been much more valuable.

Here are a few businesses that could be started by pouring in your time, and later turning them into passive income investments:

  1. Starting a website
  2. Building an App
  3. Start your own lawn mowing business
  4. Start your own car detailing business
  5. Sell life insurance

Each one of these options is incredibly time intensive to start, and might yield zero to no money. But, if you persist and cater to the demand of the consumer, then you could transform your time-intensive business into a passive income business with just a few simple steps. Mainly, you just need to develop a system where either technology or human capital (labor) can run your business for you.

Invest Your Money

Some people might be on the flip side of the channel surfers. They might have quite a lot of money, but not a lot of time to invest. If this is you, I would suggest investing your money into various business ventures that produce a passive income. Of course, nearly any business can be turned into a passive income, but here are some that you might be familiar with and have consistently produced passive money in the past:

  1. Real estate
  2. Car wash
  3. An established website

One could purchase a rental complex and hire a property management company to cater to each of the emergency calls from the renters. Very little time would be put into the business operation, but cash flow would continue to roll in. The same is true for the car wash and the established website as well.

Invest Your Time then Invest Your Money

As I stated before, many people need to start out with passive income ventures that are time intensive because they don’t have any money. But, what you might not have thought of is that those that start by investing all of their time might eventually become investors with their wealth. Think about it. As you continually build your business to be larger and larger, earning more and more money, your wealth also increases. Once you develop a consistent passive income stream, you won’t know what to do with all of your money other than, yep you guessed it, invest in more passive income opportunities. ๐Ÿ™‚ Once you understand the power of passive income, you will never invest in any other way.

Do you plan on building a passive income soon? How are you going to do it?

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Money Passive Income

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

28 Comments

    • And the wealth journey begins! Right now you’re earning some money that will get invested to make more money. Pretty soon you’ll experience that exponential rise and you’ll start to wonder what to do with it all. ๐Ÿ™‚

  1. I am about 95% finished my first Android / iPhone app and now have 6 niche sites that are up and running. I’m not ready to retire yet, but each one adds more and more monthly revenue which gets me closer to my goal of quitting work.

    Interestingly it is my main site MPB (Not passive at all) that is earning me the most money. I guess that is to be expected though as I do put a lot of effort into it.
    Glen @ Monster Piggy Bank recently posted..Super Cheap Hobbies For People On A Budget

    • That’s awesome! Let me know how the app launch goes!

    • Yep. No matter if you’re actually getting paid or not, your time is still worth something!

  2. The thing about passive income is that for the most part all of them start out requiring some form of work. Some require more work then others. Passive and semi passive income are my goals and online income works best for me. Its not completely passive for once you get it going its a lot easier than the 50-60hr weeks for a boss.
    Thomas | Your Daily Finance recently posted..How to Curb Impulse Buying Habits

    • Of course it requires work upfront, but it should be minimal once the ball gets rolling. You’re definitely right though, no matter what, it’s better than working 60 hours for a boss.

    • It is tough, but they do exist. The hardest thing for most is willingly letting go of the reigns.

    • I was there once as well MMI, and I’m making a comeback return as well! Best of luck with all of your income streams. I would love to hear about them all sometime.

  3. You’ve pinpointed and highlighted an interesting observation about how the majority of people view their “free” time as non-earning. I think a contributing factor is that culturally we place a high emphasis on leisure time. I mean, there’s something to be said for unwinding and recuperating. However, most people think “vegging” in front of the tv each night is a must because they’re too tired to do anything else – especially something like working on a passive income effort since the payoff is usually a long time away.
    Mr. Utopia recently posted..Weekend Link Love #1

    • But how much leisure time does a person really need? Did you know that the average person watches 4 hours of TV per day? That’s insane! Put just half of that time into something worthwhile and your life could change dramatically!

  4. I have various ways to build up passive income streams, through investing in the market, real estate and with a few websites. I want to diversify in case one well runs dry, I have others I can rely on.
    Jon @ MoneySmartGuides recently posted..How to Calculate Net Worth

    • That’s very wise of you Jon. I have the same mentality as well. I’d rather have 3 or 4 income sources in case one of them fails to supply the income that it once did.

    • Sounds like an awesome experience Kim! Congrats on starting your passive income journey! ๐Ÿ™‚

  5. I absolutely agree with you, but would add that investing in tax advantaged accounts, like IRAs and 401ks is another form of passive investing, quite possibly more lucrative than anything you’ve mentioned here. The real difference is the income (from appreciation, dividends, and interest payments) gets reinvested to someday replace ALL income needs. I belive this is a great method to subscribe to, but we all need to start earning income somewhere!
    Chuck@Tortoise Banker recently posted..Work to Maximize Your Income

    • Hi Chuck. I would have mentioned the 401(k), but technically, that is portfolio income, not passive income. But yes, it’s definitely a good idea to stash some cash into a retirement fund as well.

    • Glad you enjoyed the post Jim! I hope to read more of your comments in the future. ๐Ÿ™‚

  6. This may not apply if you were to invest in municipal bonds, but it applies to other methods such as starting a website and earning passive income through affiliate marketing . Once you know a need exists in the marketplace, you need to position yourself through effective marketing so that your message reaches the customer and they feel your offer is worthwhile for them to spend money on.
    Olen Casey recently posted..No last blog posts to return.

    • Great points Olen. If there is more demand than supply, then that is the area you want to do business in. The trick is to find a way to make your income passive.

  7. Great article. Typically, when you’re young you have time and not a lot of money. As you get older you typically have money, but no time.

    As many others in the comments have mentioned, I’m trying to develop multiple income streams (both active and passive).
    Derek with MoneyAhoy.com recently posted..Best Dividend Paying Stocks – Part-2

    • That no time, but lots of money is resonating with me as I am working full-time, going to school, and maintaining this site! But, once classes are done, I will definitely feel the effects of my passive income efforts as I lay in the sun with my shades on. ๐Ÿ˜‰


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