What Is Passive Income and How Do I Build It?
by Mark Courts on 09/09/18
If you're a forward-focused thinker,
you may be dreaming about leaving the workforce to enjoy an easier life in
retirement or you might even be considering retiring early. But a dream without
a plan is just a wish.
To put some wheels on that dream,
you need to consider passive income. There are plenty of different passive
income options and explanations of how to build it. If you're new to the idea,
I'm about to break it down for you.
What
Is Passive Income?
Passive income is money you earn in
a way that requires little to no effort. Some passive income ideas-like
renting out property or building a blog-may take some work to get up and
running, but they could eventually earn you money while you sleep.
Why
Build Passive Income?
Your income is your greatest
wealth-building tool-a tool that typically requires your active participation
in the form of a full-time job. You know what I'm talking about! Even if you
love your job, I'm willing to bet you wouldn't mind earning some extra income without
the blood, sweat, tears, and time commitment of another job. In fact, there are
several benefits. Building a passive income:
- Increases your wealth-building plan
- Creates an opportunity to retire early
- Protects you from a complete loss of income if you lose
your job
- Provides an additional source of income when you're no
longer able to work or if you outlive your retirement fund
How
Much Money Can I Make?
Passive income generally won't make
you wealthy overnight, so forget about any get-rich-quick schemes you've heard
of. But steady, profitable passive income options can build some serious money
over the long haul. We're talking anywhere from a few thousand dollars to hundreds
of thousands of dollars-depending on the income stream.
How
to Build Passive Income
Passive income can be built in many
ways, but first let's take a look at what it truly is and which income streams
are available.
Investing
When we say "passive
income," some people tend to think of investing because it can produce the
largest results with the least amount of work. But your retirement plan
and passive income should be thought of as two separate things.
The whole idea behind long-term
investing is to create income for retirement. You want to make sure you're
investing in your company retirement plan, like a 401(k)-if your fund choices
are good and they offer a match-in addition to other tax-favored plans like a
Roth IRA if they don't offer a Roth 401(k).
These are great options for building
a solid retirement plan, but you will incur taxes and penalties for any
withdrawals before a certain age. With retirement planning, you want to let
your money grow for the long haul and not touch it!
On the other hand, we want to think
about passive income as a type of low-effort income that can be accessed at
any time. Let's take a look at some of these options below.
Real
Estate
One way to build passive income
after you're debt-free and have some cash saved up is by purchasing real estate and renting it out to tenants.
Before you buy rental property, pay
off your own home first and purchase your investment property
with cash. Don't ever go into debt to buy rental property! The last
thing you need to do is take on the expense of owning another house or
commercial building on top of a monthly mortgage payment! Cash only.
Period.
I also suggest buying close by so
you can personally keep an eye on the property. Find a real estate agent who knows your area well so
you can buy property in a location that will attract renters.
Rental property can be a great
source of extra income, but it isn't the most passive choice because you'll put
a lot of time and effort into managing the property-unless you hire a property
management company.
If you go the rental property route,
you need to be in control of your property. I don't recommend real estate
investment options-such as a real estate investment trust (REIT)-that pool your
money into properties under its control while other people make decisions about
your property for you.
Other
Passive Income Ideas
Sell
Digital Ad Space
If you have a brilliant idea that
appeals to a specific audience, you could create something like an educational
blog or a YouTube tutorial series to generate online traffic. If your content
is engaging and it sees enough daily traffic, you could sell ad space on your
blog or ad spots on your channel. After you put in the heavy lifting, you can
sit back, relax, and enjoy streams of passive income.
Sell
Digital Products
If you've discovered how to create
content that produces enough traffic to host ads, you could make a product your
audience would love to buy. That could be anything from a simple e-book to a complex
app that generates income for years after it's released.
Store
People's Stuff
People have a lot of stuff-and
they're always looking for inexpensive ways to store it. What could be easier
than having people pay you to store their stuff?Building passive income by
offering storage could involve a large-scale investment of buying a storage
facility (with cash!) or something simpler like offering your basement or shed.
You'll just need to ensure their items are safe and secure.
Rent
Out Useful Items
Do you have any items you don't use
all the time that others would like to borrow? Useful items like a truck,
trailer, trampoline, kayak, or even your own yard could earn you passive income
as rental items. This also includes renting out spare rooms in your house with
the help of websites like Airbnb. Hop on your favorite social media site, upload
pictures of your items, set a price, and tell the world they're ready for rent.
Passive
Income Tips
The list of passive income ideas
could go on forever. As you search for the best fit, keep an eye out for ideas
that show positive long-term track records. Do other people make money on the
idea? Has it come back to bite someone who tried it? Some people ask me about
passive income options like drink, vending, or other rental machines in public
places. The bottom line? Don't fall for any passive income ideas that
promise a quick return or require huge amounts of money upfront.
They will sabotage your other financial goals. Look for ideas that are
steady, profitable, and trustworthy. Do your research. And never go into debt!
"Don't fall for any passive income ideas that promise a
quick return or require huge amounts of money upfront." -- Chris Hogan
Build
Wealth That Lasts
Did any of these ideas interest you
in building passive income? Want a clearer picture of how different income
streams might fit into your overall wealth-building strategy? If so, connect
with a financial professional through our SmartVestor program and create a game
plan to start building wealth that lasts. A financial pro will look at all your
income streams and help you develop a financial plan that meets your individual
needs. Find a SmartVestor Pro today!
About
Chris Hogan
Chris Hogan is a #1 national
best-selling author, dynamic speaker and financial expert. For more than a
decade, Hogan has served at Ramsey Solutions, spreading a message of hope to
audiences across the country as a financial coach and Ramsey Personality. Hogan
challenges and equips people to take control of their money and reach their
financial goals, using The Chris Hogan Show, his national TV appearances, and
live events across the nation. His second book, Everyday Millionaires: How Ordinary People Built
Extraordinary Wealth--And How You Can Too, is based on the largest
study of net-worth millionaires ever conducted. You can follow Chris Hogan on
Twitter and Instagram at @ChrisHogan360 and online at chrishogan360.com
or facebook.com/chrishogan360.