Passive income – we all crave it and can’t wait to make a passive income source of our very own. I mean c’mon – make money while we sleep? Bring it! Give me some of that! In fact, I’ll take a double-portion! This topic has always been intriguing, but you know what? Now with all of this craze around FIRE (Financial Independence/Retiring Early) and extremely early retirement, passive income has become even more mainstream and perhaps the most sought-after money topic out there on the web today.
Basically, millions of people want to earn money without earning it…which leads to countless scams and misinformation…
Why Most Passive Income Ideas Are Terrible
I’m sitting here on my porch during a peaceful evening, trying to think of a great topic to help my readers in their financial walk (or run, rather, for all of you that are dead-set on getting out of debt!), and it struck me; I haven’t written about passive income in quite a while! I’ll write a killer post about that!
So, before starting to jot down my outline, I figured I’d do some research to find other ways of making a passive income that maybe I wasn’t thinking of…
“Top passive income ideas”
…do your thing Google…
The top results:
- 24 Legit Passive Income Ideas to Make Money While You Sleep
- 31 Best Passive Income Ideas For 2018
- 17 Passive Income Ideas For Automating Your Cashflow
Cool, looks like I was on the right track. And then I clicked on one of the titles that had 4,100 shares so I could start my research (you’d think all the shares would mean it was awesome…apparently, it does not)…
Here were the top 8 tips:
- Get a $5 bonus with Acorns
- Invest in private real estate with Fundrise
- Lend money to your peers with LendingClub
- Get cash back with things you already buy via Ibotta
- Make $1,000 playing trivia with a special app
- Rent out your car
- Start a blog (take it from me…this is definitely NOT passive!!;))
- Invest in crypto-currencies and earn a $10 bonus
Every single one of these “passive income” recommendations were total crap. This post was created to get a bunch of gullible people to sign up for stuff and earn the blogger money through link clicks and affiliate sign-ups. In this instance, the blogger had absolutely no interest in helping their readers make a passive income. They were only interested in earning money themselves.
So why does this happen?
Basically, these terrible articles become popular because there are a ton of people looking for the easy answers. Signing up with Acorns and making $2 here and there is incredibly easy. And while it’s kinda-sorta passive, it’s really not going to get you anywhere in life.
Stop getting lured into these click-bait articles and do some real research. OR, just keep reading and I’ll give you the truth. 🙂
How to Make Actual Passive Income Yourself
When you sift through all the data and all the crap out there online, there are really just three ways to make a passive income.
Based on my experience, this is one of the best ways to make a passive income.
Two years ago, Liz and I bought a foreclosure and fixed it up as a rental. After all the expenses and repairs, we spent a total of $90,000. Since then, we’ve earned a $20,000 in profits and our property is now worth about $150,000. That’s a total profit of $80,000. And how many hours have I spent maintaining the property over these two years? …About 8 hours.
Our passive income earned us $10,000 an hour. Not too shabby!
So how do you get to the point where you’re ready to make a passive income with rental properties?
Before you buy your first place, you’ll want to:
- Get out of consumer debt
- Save up an emergency fund
- Start saving 15% of your income for retirement
- Save for your kids’ college education
- Pay off your house
- And then save up cash for your 1st rental property
Yeah, I know, you think this is going to take forever… But if you set your mind to getting out of debt and becoming wealthy, you can probably get there in 4-5 years. Seriously. It took us just three years and we’re nothing special. We just knew that we wanted a stress-free life full of choices instead of a fearful existence with eternal shackles.
2) An Online Business (NOT a Blog!!)
Many people have become successful in the area of online business – namely, online stores. They either specialize in a particular product that they created, or they simply drop ship a product from the manufacturer to the consumer. Instead of doing all the work themselves, they might pay a part-time resource to take care of all the leg-work for them, or they just have the manufacturer take care of the order directly.
Have I ever done this?
No. But Tim Ferriss has, and his book, “The 4-Hour Work Week” is exceptional. I’ve read it three times and now I have to force myself NOT to read it because otherwise I’ll just get the urge to quit my job and be unhappy when I decide that I’d rather not… Seriously, it’s a weird struggle.
3) Systematize a Physical Business
Small business owners — Most of them look ragged, are over-worked, and they can never seem to get away from their jobs. Sure, they earn a decent wage, but they haven’t taken a real vacation (away from their phones and email) in 10 years!! This is no way to live. Little do they know, that their problem isn’t the small business…it’s them.
Whether they made the conscious decision or not, they decided at some point that they were the magic sauce in their business. If it was going to be done right, they knew that they would have to do it themselves. This is the main cause of their self-destruction – their inability to let others take responsibility.
And you know what the next step is after those 10 years of vacationless zombie life? They finally make a few hires and try to hand off some tasks. Things seem okay for a while until employees start making mistakes, workers don’t do the job they’re supposed to, and customers start complaining. The owners soon become even busier than before because now they have more business and they still have to keep all the plates spinning!
Within a year or two of this madness, they throw in the towel, fire everyone, and scale their business way back. They’re a one-man show again. Earning less, but working 60 hours a week now instead of 90.
It doesn’t have to be this way…
It doesn’t matter what type of business you have – plumbing, electrical, cleaning service, retail store, fitness club, whatever – every one of them can be systematized and turned passive.
Basic work instructions.
Figure out the best possible way to handle every situation, create a step-by-step process to handle it, and teach your new employee the steps (with the written instructions for them to reference later). This will do two things for you:
- It will enable you to start removing yourself from various situations (customer interactions, logistical support, closing up the shop, etc.), and
- It will make customers want to come back because they’ll always have a positive repeatable experience
If you want to make a passive income, don’t worry about making it passive immediately. Build up a business, get it humming, and then work to separate yourself from it via a system.
Want to learn more about this? Check out “The E-Myth Revisited“, by Michael Gerber.
Make a Passive Income Today
So now you know. Don’t go out and invest in Fundrise or Acorns and think you’re developing a sustainable passive income. You’re not.
If you want to be truly wealthy and develop a lasting passive income that might even help you retire someday, then take a look at the three main ways to make a passive income above. Invest in real estate, start an online business, or systematize a brick-and-mortar business. Those three options leave the door wide open in terms of possibilities!
So what are you doing to make a passive income? What are your plans for the future?
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.