Without a doubt, you’ve seen internet gurus advertising their course on YouTube. More often than not, there’s a nice car in the background (Hello, Tai Lopez). They promise you can live the same carefree lifestyle as they do, you just need to buy their course for a guaranteed quick and easy profit.
Don’t buy into that. Scams and Ponzi schemes are, unfortunately, commonplace. Earning passive income is certainly possible, but you need to be prepared to work hard to get things running smoothly.
What is passive income?
Simply put, passive income is a stream of money that, long after you’ve put in the hours and effort to create, continues to generate revenue for you. Passive income comes in many forms and sizes, but will always require some sort of initial set up period.
Why build a passive income
Building a passive income stream can open up a whole world of opportunities. Whether you’re trying to save for your future or go on an all-inclusive trip, this steady stream of cash can help you live the life you’re searching for. And why stop at one additional income stream? There’s no limit on how many passive income streams you can start.
Not to mention that it’s a fab backup plan if you happen to lose your day job.
Passive income examples
We mentioned earlier that there are various types of passive income. Let’s take a look at some of the more popular examples. Keep in mind there are literally dozens of ways to start earning passive income, and what works for some of you might not work for others. I’ve made a list of 6 passive income ideas that I will be focusing on in 2021, to give you some inspiration.
If you have money lying around you can invest that money in real estate. Use the money for your down payment, find a loan with a fixed interest rate, and make sure the income from your rent is bigger than your monthly expenses on the property. Besides the monthly revenue from rent collection, you build up equity in the property with every loan payment.
Starting a blog or a website
If done right, starting a blog or a website will yield promising results within twelve months. Prepare to work a lot for a limited return at the start, but once Google decides to run your content on the front page of the search results, you’re ready to scale up, increasing revenue.
If you don’t plan on using your passive income revenue straight away, investing in index funds or individual stocks is a good long term play. You can choose to invest in growth stocks, where you count on the stock price to keep rising over a period of 20 to 25 years. Another way to look for good returns in the stock market is to invest in companies that have a proven track record of paying out dividends to their shareholders. You can then reinvest those dividends in more stocks.
The pros and cons of passive income
Now that you have a better understanding of what passive income means, let’s take a look at some of the positive and negative aspects of creating an extra income source for yourself.
Extra stream of income
By far, this is the best part about creating a passive income. Who wouldn’t want an extra stream of income, right? Exactly!
Not to mention that after you’ve set it up, you won’t really need to attend to it much. Never forget true passive income doesn’t exist. You will need to put in the time and effort at the start before you can reap the benefits later.
Reliable retirement plan
If you work a nine to five job or similar, you will probably have a company pension. However, another source of income will allow you to put even more money into your retirement fund. This way, you can be doubly sure that you’ll have enough for later in life.
Finding financial freedom
Working a regular job can be incredibly stressful — especially the higher you climb the ladder. A passive income, therefore, can reduce this horrible feeling. You won’t need to worry so much about paying the bills and you’ll be able to focus on the things you want to do.
No income cap
There isn’t a limit to the money you can earn every month. If you have made smart choices and invested in a business that truly works, you will be sat on cloud nine in no time. Just remember that you will need to work hard in the beginning to get yourself to the dizzying heights of success.
More free time
Once you have got to a point where your passive source of income is making a decent profit, you have more free time to create even more money-making businesses. Alternatively, you’ll have spare time to just enjoy life.
Depending on the business you have created for your passive income, you might have to give it a lot of maintenance. A brilliant example of exactly this is acquiring rental properties.
Many people think that this is an easy option. But, it’s quite the opposite. You have to spend a lot of cash initially to acquire the property and then, you’ll have to stay in contact with your tenants to fix any problem with the house or apartment unless you hire a property manager. Your profit margin will take a big cut if you go this route.
To create a business or product that will give you passive income, you will need to pour in a lot of effort and time in the beginning. You may well be spending around 60 hours every week just to get your side hustle off the ground.
On top of this, some businesses won’t even make money until a year after creation.
No one can predict whether your business will turn a profit or not. You can do all the right things and it still won’t turn out to be a winner. Depending on the type of business you’re starting, it might be wise to go into it because you love it and not because you’ll make money.
I suggest that you don’t quit your day job while you’re getting the passive income off the ground to ensure you can pay your bills.
You may lose (part of) your investment
Earlier, I mentioned that it will take a lot of effort to get your passive income business started and generating a profit. During this process, it is likely to lose a bit of money. The exact figure will depend on the type of business you’re starting. Make sure you can afford to possibly never see the money you’ve spent again. Thanks to the internet we have unprecedented access to knowledge, so try to learn as much as you can. You can’t avoid putting money into your project, but you can minimize your start-up costs for sure.
Oftentime needs capital
Real estate, high yield savings, and stock are all great ways to earn big money. However, earning big means investing big too. In other words, you need a fair amount of cash to put into your passive income before you’ll see a return.
The good news is that there are other options. So, if you don’t have lots of capital, you could try a less risky business.
The bottom line
Having a passive income can make your life so much easier. From obtaining more free time to acquiring a better retirement fund, a steady source of secondary income can give you it all.