Wait, what’s passive income?
“Passive income includes regular earnings from a source other than an employer or contractor. The Internal Revenue Service (IRS) says passive income can come from two sources: rental property or a business in which one does not actively participate, such as being paid book royalties or stock dividends”
What are the various ways that people generate passive income?
Things that require work up-front
Publish– Love to write? Have a great idea? Write a book! Assuming you’ve done a good job writing your book and people want to read it you can just sit back and collect the money when people purchase it. If everything works out with your book, hire someone to turn it into an audiobook and sell it again to those who don’t read.
eCommerce – Set up an online store with drop-ship capabilities and see how it goes. I suspect that you’d want to do some work automating this and it probably requires some ongoing work like finding new products. If you’re interested in more info on this topic let me know and I’ll research and report back.
YouTube – Create some content that people want to watch and then set up some advertising.
Things that don’t require up-front work.
Investing – I almost feel like this shouldn’t be in this category. Technically you don’t have to do anything except throw some money at it. However, that’s pretty much gambling. Some analysis should be done to make sure that you don’t lose your shirt. Found a great stock that pays dividends, great, but
Real estate – If you have the funds to purchase a property and rent it out to people, great. You may even be able to find a property management firm that will do all of the work for you for a small fee.
Airbnb – Have an extra room? Basement apartment? Nice warm shed? Tidy shipping container? Rent it out and make a little extra money on the side. I have a bit of a hard time calling this one passive since you may have to clean up after someone stays but hey, perhaps you can just charge an extra fee and hire someone to take care of that too.
Overall things in this category really just include purchasing assets that pay you back regularly.
What do I want in my Passive Income Plan (PIP)?
For me I’m leaning towards creating IP (intellectual property), investing in value stocks (stocks that pay dividends, and P2P lending.
Here’s my plan:
Increase my P2P contributions to $50/mo. My current account value is $244 and I estimate that each $50 deposit will generate an increase of around $0.17 per month which will increase as the account values go up. I expect that within a year this strategy will increase my monthly passive income to $2.57. My projections are also based on 4% interest which is pretty conservative for P2P lending (I think the actual range is about 5-23% depending on credit rating).
This plan also requires that I purchase new notes every time I have enough free cash to do so. Right now, I purchase new notes (using the monthly payments I receive only) every 2.5 months. By around
More to come
Sometime soon I plan to write a more in-depth piece on Lending Club so you can see how I use it and how it works.
There are a
Stocks that pay dividends
Purchase value stocks; those that pay dividends. My plan is to purchase two stocks in March 50 shares each. Why March? Because that’s when my company pays bonuses and that’s when I should get my tax refund. The purchase should increase my average monthly dividend income to about $35.52 or $426 annually. My current plan is also to purchase value stocks annually, shooting for around 3% yield. Extending this out to retirement age puts the dividend payout at about $190/mo. When it’s time to purchase my stocks, I’ll post about what I’m buying and why it makes sense to me. See this post on my TGT stock purchase (3.5% dividend yield).
Intellectual property. As I said before, this is the IP. If I keep writing at my current pace, I’ll have enough written to fill a book in less than a year. Will anyone want to read it? Given the few people who’ve visited my blog and the surprising ratio of visits to follows I think it may be a possibility.
Writing a blog
The blog. I’m still working out how to make money off it. I’ve signed up for Amazon’s affiliate program but the jury’s still out on how well that’s working. I’m still investigating the potential for ad revenue and increasing readership and driving traffic. I was looking at Medium as a potential place to promote the blog but I think I’d have to formal up my writing style and produce an article. In case you’re wondering, yes, I’m capable of doing this. I actually had two years of journalism in school. My wife acts as if I’ve somehow just learned to write like it’s a hidden superpower that I shouldn’t have. Joke’s on you, dear! I’ve been playing illiterate this whole time!
Getting used to blogging
Since I’m new to blogging and new to WordPress I can’t help feeling like it’s a car that’s kind of hard to drive. I want to change the header at the top but what I see when I set it is not what I see when the site gets published. I can’t seem to figure out how to change the color of the blog’s title header.
Where are all these fonts that I’ve never heard of coming from? Why doesn’t it behave as I expect it to? Do I get more flexibility if I upgrade to a paid plan? Would you as the reader find my content any better? Well, probably but that’s just because we’re more apt to believe things that look better because it’s a cognitive bias. Speaking of cognitive bias, if you haven’t read Thinking, Fast, and Slow then you need to get on it immediately. I’ll explain more at the bottom of the post.
Passive income experiments
Experiments. This is the unknown for me. I may try selling a product using Fulfillment by Amazon (FBA). Android app creation, I have a great idea but for an app (trust me, you’re all going to want it) but I’m not a skilled Android app developer. I’ve been a programmer but not the kind that works with mobile apps. Anyway, part of this plan is about developing different ways of increasing passive income, even if it’s just a few cents at a time.
How do you choose what you want in your PIP?
This is going to be up to you of course and you’ll need to consider how much time and effort you’re willing to put into it. If you don’t want to put any effort into it then you’re probably going to want to go down the investment side of passive income generation. If you’re willing to put in a lot of effort but don’t have a lot of money to begin with then you’ve got to get on the side of generating content/intellectual property.
Buy a business?
If you have a lot of money to invest, perhaps you could consider just buying a business. However, if it’s not something that’s being managed by someone else, then instead of buying passive income, you’ve just bought yourself a job.
Purchase some IP that pays royalties?
During my research I found some ways to purchase uncommon assets. RoyaltyExchange.com – You can buy the rights to music and possibly video. I didn’t see any video but if it was only for music, I don’t see why they would be labeled as music.
No money? No problem, ok, sorry, I wrote that wrong,
Work first, then receive money
You have to do something up front for the money to start coming in. Whether it’s working to get money to invest, or working to produce something that pays you over time, it still requires work. The thing about passive income is that it keeps going. If you had $2 million and a bank paid you 3% interest then you could live without working indefinitely as long as you spend less than $60k per year. By the way, it’s just an example of how the math works, we don’t have to poke holes worrying about taxes, variable expenses, etc.
Example, if you make an album and people play your music then you get royalties when people purchase it. If you don’t then you’ve probably been screwed somewhere. I have a friend who does acting and sometimes records audiobooks. When she does that, she typically gets royalties. So, as people are buying those audio books, she gets paid. She’s a fantastic voice actor too so that helps.
Start making your plan
I can’t make your plan for you but it’s possible that I can help you do your analysis. If anyone would like more information on how to use Excel to analyze potential passive income streams let me know and I’ll see if that’s a course that would be worth it for me to offer. If it is then I’d probably add creating the course to my PIP. Perhaps I’ll offer the course and if it sells enough, I’ll create it.
Book Recommendation: Thinking, Fast, and Slow
Why do you need to get and read Thinking, Fast, and Slow? Because your brain is totally hijacking you and you don’t even know it! Daniel Kahneman is a fantastic author and Nobel Prize winner. He’s a psychologist and economist the whole book will blow your mind. I hereby certify that I both read and enjoyed this book.
Engaging the reader in a lively conversation about how we think, Kahneman reveals where we can and cannot trust our intuitions and how we can tap into the benefits of slow thinking. He offers practical and enlightening insights into how choices are made in both our business and our personal lives—and how we can use different techniques to guard against the mental glitches that often get us into trouble.From the Amazon description
Next up: You’re a business, I’m a business.