Too many times in one way or another you must have heard about the word passive income, some knows what it, while a whole lot of others don’t know about it.
If you work a standard 40-hour week, you’re devoting over 35% of your waking hours to your job – more than you can possibly spend on any other single activity.
But there are other people whose income is not tied to their daily grind – at least, not completely. That’s because they have sources of “passive income”: money that keeps rolling in even when they’re not on the job. This extra income can pay for a few added luxuries , provide a cash cushion for emergencies, and even serve as a stepping stone to financial independence.
You could be one of these people too. All you need to do is find a source of passive income that works for you.
Developing a passive income stream often requires a big investment of time, and sometimes money up front – but once it’s in place, you can keep reaping the rewards for years to come.
Passive income is any money you earn on a regular basis that doesn’t come from a job. In some cases, passive income is money you get from a project that you put money into at the start; more like an investment. For example, if you own part of a business but are not actively involved in running that business, your cut of the profits is passive income.
You can also earn passive income from a project that you have invested your time in, rather than your money. For instance, if you spend a year writing a book and finding a publisher for it, the royalty payments you get from that book’s sales are a form of passive income.
Having a source of income that isn’t related to your job offers a variety of benefits, find below some of these benefits.
Benefits of having a Passive Income
- Extra Cash. When you’re short of money, financial experts usually advise you to respond by tightening your belt. Little luxuries, such as a daily latte or cable TV, are usually the first expenses to be slashed from the budget in an effort to make ends meet. But if you can find a way to supplement your regular paycheck with a passive income stream, the extra income can allow you to enjoy these simple pleasures again without going into debt.
For Emergencies. Having a source of passive income, usually do have a roll to play in times of emergencies. If you own a job that pays you on a monthly basis, a passive income stream could give you the extra cash you need to build up an emergency fund without having to cut back on your current spending.
Job Flexibility. When your job is your only source of income, you’re dependent on it. You’ll put up with unpleasant working conditions or unreasonable demands from a boss , because giving up your job would leave you with nothing to live on. But if you have some passive income to fall back on, you can afford to be choosier. You can cut back on your work hours and let your passive income make up for the lost wages. And if you lose your job altogether, you’ll still have at least a little income to sustain you over until you find a new one.
Extra Money in Retirement. The vast majority of Nigerians aren’t putting aside enough money to support themselves comfortably in retirement or probably Nigerians don’t make plans for retirement. If you’re in this position, you could one day find yourself with no income except for Social Security, which was never designed to be a family’s sole source of support – and which might have to cut its benefit levels still further before you reach retirement age. But if you do the work now to create a passive income stream, you’ll still have some money coming in after you retire.
An Earlier Retirement. If you can earn enough passive income – from one stream or, better yet, from several – it can replace your paycheck altogether, making you financially independent. This would give you the option of
retiring early, or perhaps quitting your current job and taking up a new career that interests you.
Making this much money solely from passive income doesn’t happen for most people, and it doesn’t happen overnight – but it is possible.
Ways to Earn Passive Income
As earlier said above, when you see the phrase “passive income” in an article, it’s often referring to money earned from passive income investments. However, investing is only one way of earning income when you’re not working.
There are a variety of other ways to set up a passive income stream by putting in an initial investment of time, money, or both – and there are even a few that don’t take very much of either.
1. Renting Properties
One of the best-known ways to earn passive income is to own a rental property . Renting out a building can bring in a tidy sum of money each month, with little work in some cases – but it also requires a big chunk of cash up front to buy or build the property. Also, the money you collect in rent isn’t pure profit, as it also has to cover all your expenses as a landlord, including mortgage payments, property tax, insurance, maintenance, and any property management fees.
As a landlord, you can boost your earnings a bit by skipping the property manager, agent or care-taker and dealing with repairs and other services yourself. However, if you make this decision, the income you earn from your rental is no longer truly passive, because your property is now an ongoing time commitment. Instead of just sitting back and collect the rent every month, you have to do all the work of maintaining the property. And you also have to be on call 24/7 to deal with any emergencies that come up, from fire to flooded or any other thing.
If you’re not prepared to take on the cost or the responsibility of owning a rental property, you can become a landlord on a smaller scale by renting out a room (or a couple of rooms) in your own house. Taking in a boarder certainly has its own set of risks, since you are letting a stranger into your home. On the plus side, it doesn’t cost you anything to acquire the property, since you already own it, and it shouldn’t take that much more work to maintain just because you have an extra person living there.
If that’s still too big a commitment for you, you can always rent out rooms in your house on a temporary basis to vacationers. Depending on where you live, you may need to get a permit or business license, have your property inspected, and collect and pay local taxes.
2. Residual Sales Income
Typically, when you work in sales, you earn your money in the form of commissions. Every time you sell a product or a service, you are paid a percentage of the money paid by the customer. With some types of sales jobs, however, you don’t just earn a single commission when you make a sale – you also receive ongoing residual payments from sales you’ve made in the past. This type of residual income that can last for years after the original purchase.
3. Sales of Creative Works
It’s possible for an artist who gets one really big break – such as a hit song, a successful movie, or a bestselling book – to live off the proceeds of that one success for life.
However, there’s a big difference between what is possible and what is likely. Many people imagine that if they just produce an e-book , album, or video and offer it up for sale on the Web, they can simply sit back and watch the profits roll in. And Internet hucksters are quick to feed this belief, offering up their own e-books that promise, for $20 a pop, to teach you everything you need to know to write a bestselling e-book in your spare time and make enough to quit your day job.
The truth is, creating a successful publication of any sort takes talent, hard work, and at least a bit of luck. It can take months, if not years, for an artist to craft a work that people will want to buy. And depending on what kind of work you want to create, you will probably have to invest in some resources up front.
There are several necessary factors to produce one of the following works successfully:
Books. For a writer, producing a manuscript is just the first step. If you want it to sell, you should get feedback on it from other writers – preferably successful ones – and go through multiple rounds of editing to turn it into a professional-quality work. You could even consider hiring an editor to whip your manuscript into shape, particularly if you have trouble with mechanics such as grammar and punctuation. Then you need to either use some page layout software to turn your manuscript into a readable book, or otherwise hire a professional to do it for you.
Albums. Once you’ve written and arranged your songs, you need to record them. If you don’t already have a band to cover all the musical parts, you need to form one – and once you do, those musicians will all get a cut of the sales from your album if it’s a success. Next, you need to book a studio for a recording session – or else spend a lot of money on equipment to set up a home studio that can produce a professional-quality recording. And once you have all the tracks laid down, you need to spend some time picking and choosing the cuts you want to go onto the album, possibly editing them digitally or even going back into the studio to re-record them.
Videos. Whether you’re shooting a film or an instructional DVD, you need a video camera and someone to hold it. Depending on what kind of video you’re making, you might need to hire actors, a crew, or a special-effects team. Expect to spend many hours shooting all the footage and many more editing it to produce your final cut.
Once you have a finished work, your still need to find a channel to sell it. The old-fashioned way to do this, and one that still offers the best chance for finding a wide audience, is to hire an agent and peddle your work to publishers. However, finding a publisher willing to take your work is a chancy business. You have to be prepared to face one rejection after another, possibly for years – along with the possibility that you might never find a publisher at all.
Alternatively, sites like CreateSpace can help you turn your work into a printed book, e-book, CD, or DVD and sell it online through your own e-store or through Amazon. However, this site also takes the lion’s share of the profits. For example, the site reports that if you have a black-and-white printed book, 184 pages long, and you set the sale price at $8.99, you get to keep only $2.34 for every copy you sell. If you set your sale price too low, you might not make any money on your sales at all – and if you set it too high, you might not actually sell any copies.
There are other alternatives that let you keep a bigger cut of the sales – but those sales might not be as much. For instance, you can publish an e-book through Amazon’s Kindle Direct Publishing and sell it on the Kindle Store, earning royalties of up to 70%. Or you can set up a web store where you can post PDFs, audio files, and video files for download, so your fans can buy them from you directly. However, you won’t necessarily reach a lot of people this way, and you could spend years writing and peddling your works online for $0.99 apiece before they produce a passive income stream that’s bigger than a trickle.
It is possible to build a decent income stream selling your own works, but it’s not something you can expect to succeed at overnight. You have to put a lot of effort into writing, editing, or recording your work, and a lot of additional effort into marketing it. For the first few years, at least, your income from the work you produce will be more active than passive, because you’ll be spending a lot of time and energy on your publications. But over time, if your work is good enough, the sales on the pieces you’ve already published will gradually increase, bringing in extra income with little (or no) additional effort on your part.
Selling publications isn’t the only way to make money off your writing or other creative work. Another alternative is to create a successful blog or website and make money by selling ads. This one is very common here in Nigeria. Everyone is going into blogging as a way to earn a living or make money online.
Probably the easiest way to do this is to set up an account with a pay-per-click advertising service, such as Google AdSense. This service searches your site for keywords, then selects appropriate ads and displays them on your page. Each time a user clicks on one of these ads, you get a small fee – anywhere from a few cents to a few dollars – added to your account. When the total in your account reaches a certain minimum, such as $100, the money is automatically transferred to you.
However, the amount you can make with this kind of advertising is limited. According to an analysis by
MonetizePros, even hugely successful websites like The Huffington Post, Bleacher Report, and TechCrunch only earn between $6 and $22 per thousand page views. So if your website gets only 10,000 page views a month, this type of advertising would bring in at most $220 a month. In reality, your income will probably be much less, since these top-earning sites have invested years in attracting devoted readers and building teams of high-quality writers.
You can also sell ad space on your site directly, wherein sponsors pay a certain amount of money per month up front to display their ads on your website. You can seek out advertisers directly by contacting companies that sell products and services related to your site’s content. Or, you can use a site like BuySellAds to let companies know you have space to sell. However, unless your site gets a lot of traffic – say, at least 10,000 unique visitors per day – you’re not likely to find many sponsors interested in advertising with you.
All these forms of ad revenue are technically passive, because you can earn them at any time while your website is up and running, not just during the times when you’re working on it. However, to make real money from ads, you need to build a successful website, and that takes time and effort. And even after your site has attracted a bunch of regular followers, you need to keep posting new content to keep them coming back.
Technically, once you’ve created a successful site, you could hire someone else to manage it – but just like hiring a manager for your rental property, this cuts into your profits, and it could even cut them down to nothing.
However, there is one way to generate revenue through your writing that doesn’t require you to do all the work of creating a successful site by yourself. You can find a site that’s already successful, get hired as a writer, and earn a bonus for the page views your articles get.
5. Affiliate Marketing
Another way to make money from a website or blog is affiliate marketing. This is a form of performance-based marketing, in which you must direct customers to a retailer’s website by promoting products on your own site and linking to the retailer’s product sale page. Whenever a consumer clicks on one of your links and makes a purchase, you earn a commission – usually between 15% and 20% of the total price.
Like online ad sales, affiliate marketing deals don’t bring in much money unless your site gets a fair amount of traffic. In order to get people to click on your affiliate links, you have to put in the work required to build and maintain a site that attracts plenty of readers. For the best results, you should write posts specifically designed to call attention to the particular product you’re linking to, so people will have a good reason to click on it.
However, if you and a friend both have affiliate marketing deals with the same company, you can boost each other’s income a bit by becoming “shopping buddies.” Whenever one of you wants to shop on that site, you visit your friend’s website and click through from there so they get the rewards. Alternatively, you can just give each other your referral codes and enter your friend’s code directly when you make a purchase. This “you scratch my back, I’ll scratch yours” deal ensures that both of you earn at least some money from your affiliate arrangements.
6. Subscription or Membership Fees
Another way to generate revenue from your writing or other creative work is to sell it through a membership site.
With this type of site, visitors pay you a monthly fee to gain access to your content – articles, videos, lectures, courses, or whatever you think people are willing to pay for. Many subscription sites pair their paid content with some free content, which serves to hook new readers and convince them that the “premium” content is worth the cost of a monthly fee.
A subscription site can be a more reliable source of income than ad sales, because your subscribers pay you up front at the start of each month. However, to get people to pay for your site, you have to give them something that’s worth the money. Examples include subscription sites such as Blog Mastermind , which promises to teach people how to make money online through blogging. People are willing to pay for these sites because they’re run by successful experts.
Generally, successful subscription sites offer lots of in-depth content, such as useful articles, web-based seminars, live Questions and Answers sessions, audio downloads, and member forums. For instance, a membership site might take an existing e-book, break it up into 12 chapters, create an audio recording to go with each chapter, add live interview footage from the author’s research, and turn it each chapter into a single session of a year-long course.
To make money with a membership site, you need keep adding fresh content each month, so existing members have an incentive to keep renewing their subscriptions. On top of that, you need to put time and money into marketing your site – through ads, interviews, blogs, podcasts, and search engine optimization – to attract new members. All this can make a subscription site less a source of passive income and more of a full-time business. As with other types of websites, you can pay someone else to maintain and market a site you’ve already built – creating a more passive income source – but, as always, that cuts into your profits.
It’s important to understand that passive income is not money earned for doing nothing. Creating a passive income stream takes work. Passive income streams that can bring in enough money to live on, such as writing a book or owning and managing rental properties, require a major investment of time, effort, and sometimes cash.
However, passive income has one big advantage; Once that work is done, the money continues to come in, with no additional effort on your part. This means that if you spend enough time during your working years setting up streams of passive income, you’ll eventually reach a point where you can collect enough to get by with little or no extra effort. And until then, you can enjoy the extra cash.
Do you have any passive income streams? Let us know about it using the comment box.