The idea of generating passive income was always popular. It’s such a dreamy scheme: to receive money without doing any work.
Maybe the whole idea of passive income is some kind of a scam? Maybe, on average, you’d be better off just by having an ordinary job?
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What is Passive Income?
The life of a regular person goes according to a very familiar scenario: go to school and then get a job in order to make money to cover your living expenses. The majority of people in any country have only one source of income - their job. Entrepreneurship is still uncommon because you need to have a starting capital to create a business and it’s not guaranteed to be profitable.
Passive income is an income that doesn’t require a lot of ‘active’ effort, it may even require no effort at all. This income just “flows” to your bank account automatically. The main idea of passive income is that it’s possible to do something once, and then it will keep bringing money without your attention.
You may already feel that there is something a little bit fishy about this whole concept.
Obviously, anyone would love to have this kind of income, but, as we already know, only a few people managed to create such a money stream for themselves. Those people are business owners, investors and other “capitalists”.
Sources of Passive Income
In today’s world, we have much more opportunities to create a passive income stream for ourselves than people who lived 50-100 years ago. Nowadays, millions of people have an opportunity to start their own “project” right from their homes, thanks to the internet and other modern technologies
Here is the list of common passive income sources:
- High-yield bank’s savings account
- Rent from real estate
- Investing in stocks, bonds, ETFs, index funds, mutual funds, hedge funds, etc.
- Advertising income from an informational website or a blog
- Advertising income from an online store
- Advertising income from YouTube
- Passive income from a business
- Passive income from book sales
- Passive income from selling online courses
- Lending money, be like a small bank
- Having income from an automated thing such as vending machine
You may run into many other ideas and suggestions online, but the truth is: most of them are not really passive. Actually, the most of the income sources listed above are not 100% passive and they require quite an effort to make them work.
How Can I Make Passive Income With no Money?
It can be close to impossible to create a passive income with no money at all: you would have to ‘spend’ something, at least your personal time, in order to get any results and the fact that you’d probably need to work even more than the people that have a regular job makes the idea of passive income not as brilliant at it might look at first glance.
These days, an optimal way to create source of passive income without any money investments is to do something on the internet (even then you’d have to do a small money investment anyway in order to cover your hosting, domain, advertising and other expenses). There are still some opportunities and it’s possible to start your new project online. But again, you would have to offer something that someone would like to buy in one way or another. Maybe you can draw, sing, or play games while making funny comments, maybe you can write cool stories, who knows? You can create content, gain recognition and, after a while, this project might bring you an income stream, especially if you’re lucky and talented, but would that income be really passive? If you stop producing new content, your audience will probably leave you, so it’d be more like “self employment” rather than truly passive income.
You need money to make money, and time is money too, so you can make some money in the future by spending (investing) your time now.
Main Problems You Would Face
You would face several problems with any kind of passive income. The most common one is capital requirements and, as we already mentioned, you need money to make money, but there are other issues too: time, licenses, knowledge, skills, technical barriers, etc.
According to the basic law of physics, something can’t come out of nothing (I am paraphrasing). So, to establish a passive income, you would need to give something out first, commonly it’s your time and your money. It’s like growing a fruit tree: you plant it, take good care of it, and only then you would be able to enjoy the fruits. After you invest enough in a project, it might start to take less of your time but people often underestimate how much capital, effort and luck this usually requires.
Many projects that can generate passive income don’t just produce X profit for every Y invested resources, they work differently. Let’s say that you want to create a business that will work automatically without your attention. You probably know that you can’t make this business profitable in one month. In the first few months (and sometimes years), your business will most likely lose money and require a lot of effort to maintain it. Only after a while, if you’re lucky, this business might become a source of passive income for you.
You have to be patient with any kind of project and be ready to learn and to close it if you’re no longer certain that it’s going to work for you. You should be ready to drop a project you invested your time and money into and move on to the next opportunity. This can be hard to do for many people as they get emotionally attached to their projects, but this step might be necessary if you seek success on the long run.
A very big issue on your journey towards passive income would be keeping a healthy balance between a regular job/life/hobbies and your “passive income project”. You would have to find time, maintain your passion and have enough energy in order to keep your project afloat.
What is the Best Way to Generate Passive Income?
Arguably, the best way to generate passive income is by investing. Most of the issues we described in the previous paragraph are related to business as a source of passive income, but investing is a bit different. It’s not easier but you can have more control over your risks and expected outcomes.
These days, the capital requirements to start investing are close to 0 and there are many brokers, firms and even apps that allow people to start investing with a very small amount of money and the fees are going down too.
There are many options and strategies to invest your money with the level of risk you’re willing to accept.
Usually, the main problem with investing is that your investing income depends on the amount of money invested and, with a small capital, you would be required to risk more or to start investing early in order to be able to get a good return. Wealthy people with serious capital of $500,000 and more can get a nice passive income stream with almost no risk just because the amount of money they have.
Investing is not an easy business but this opportunity is open to anyone and you can start with a very small capital. This might be the way to go if you’re thinking of generating some passive income.
Guaranteed Minimum Income (GMI)
Our society and economy is moving towards a bizarre direction. There is an idea out there that everyone should get some passive income from government through so-called “Guaranteed Minimum Income” (GMI) or “Universal Basic Income” (UBI). Currently, Andrew Yang, American 2020 Democratic presidential candidate, is going from one TV show to another in order to convince people that such a scheme has to be implemented in the near future. Andrew Yang’s idea is quite deep, he says that all Americans are shareholders of their great country and its economy, therefore they’re entitled to some portion of its income that he beautifully calls the “Freedom Dividend”.
This idea has been tested in a few small countries (and rejected by some, like Switzerland). In any case, the GMI idea is still very arguable. However, if this will be implemented at some point in the future, our understanding of passive income would change because everyone would get a passive income stream by default and the question would be only “how much will I get?”.
Why Passive Income is Often Associated With Scam?
It’s funny how if you search “passive income” on Google (or, god forbid, on YouTube) you’d likely run into something like:
“How To Easily Make $1000 Per Day? Use This Simple Trick...”
“The Hidden Secret of Billionaires (It Just Got Leaked)”
Why do scammers love this topic so much?
Well, as we mentioned earlier, passive income is a very attractive idea and people tend to read the word “passive” as lazy, simple or easy, and who don’t want to get some easy money? The reality is far from such a dreamy interpretation, but actually, we have a problem with the term “passive income” in the first place. People who receive passive income rarely call it this way, the term “passive income” was created by self-help gurus and it’s not a legitimate economic or financial term. An investor would just call it “return”, a business manager would never call his income “passive”, because there is nothing “passive” in managing a business, it’s not a passive activity.
So, when you search for “passive income” you would bump into lots of con artists and, to do a proper search, you would have to dig a bit deeper and learn about a particular topic you are interested in (like “investing”).
Should you even try to create a source of passive income for yourself and your family, knowing all these obstacles and complications?
Our view is that you should definitely try it and, with investing, it doesn’t require a lot of capital in order to receive your first small revenue. Sure, it might be tiny at first (you could even lose money if you make a risky investment), but it’s still much better than to rely on a single source of income such as your day job. Just don’t forget that nothing comes easy, so, in order to create a source of passive income, even a small one, you would have to spend some time, learn and be ready to take some risks. Also, it’s perfectly normal if your first attempts to create passive income fail: don’t give up, learn form past mistakes and try again once you’re ready. At some point, you’ll find what works for you and you will definitely become smarter and gain a lot of new knowledge that will help you a lot, even if you decide to come back to your normal day job.
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