Being reliant on other people for financial security does not place you in a very advantageous position. It places you at risk from outside sources ranging from unforeseen business setbacks to personal conflicts.
There are several ways society has tried to protect workers from financial disaster including unemployment insurance, pensions and beneficial taxing systems but they all require support from others (either those still working, desire the political power or from employee contributions).
By building a passive income now you can take control of your financial future without having to rely on others.
Passive income is income which continues to come in after the work has been done. It includes income from royalties from creative projects, investments and ongoing business income. Passive income is not free, nore is it easy to develop but it is the best way to secure one’s financial future.
What is passive Income
Passive income is becoming a new buzzword which is being used to promote products and services to those who have a get rich quick mentality so let’s be clear. Passive income is not a get rich quick scheme, it is not easy and it requires a high level of commitment, learning and consistent effort to produce a strong income.
Passive income comes from three basic revenue streams:
- Dividend producing investments
- Royalty producing creative projects
- Business income
Passive income from dividend producing investments
There are many forms of investing and all of them can be beneficial. You can invest for the long term in companies which have strong growth potential, in mutual funds or index funds but to produce passive income through investment there must be a dividend on a regular basis which can be either reinvested or taken as cash.
Passive income is not capital gains (increased value of a property or portfolio). It is about cash flow. Without cash flow an investment cannot be categorized as a passive income source. If the asset must be sold to reap the benefit of ownership it is not a source of passive income.
Therefore only investments which pay dividends are passive income sources. Such investments can be stocks, bonds, GIC’s or even savings accounts. Not all of these investments will produce enough passive income to make any difference but they all have their place in one’s financial plan.
Real Estate investment is also considered to be a passive form of income and it can be in some situations. If the difference between the property costs (mortgage, taxes, maintenance) and the rental income is positive and little or no time is spent managing the property then it can be a passive income source. Although this may sound like an easy method it is fraught with pitfalls and requires hours of study and risk.
Royalty producing creative projects
Royalties are how creative people get reimbursed for their efforts. Writers get paid a small percentage of the sales of every book sold, photographers get paid everytime one of their images is used and speakers are paid for every podcast listened to. These are just a few ways royalties are paid to owners of creative properties, other options include music, written coursework and marketing programs.
A royalty is basically money paid to the creator for the use of their property for commercial benefit. Publishers pay writers for the right to publish and market their work in order to make a profit. Singer and songwriters will get signed with a record company which will market and manage the artists work. These are just two methods which can be utilized to produce passive income.
There are many platforms which are available to creative people to assist in monetizing their ideas and creative products. Platforms such as video content repositories and audio repositories which can be used for spoken word and music content and written content platforms.
Some examples of these types of platforms include:
Video content repositories
- Youtube
- Rumble
- Vimmy
Audio content repositories
- Spotify
- Amazon music
- Youtube music
Royalty income provides oportunities for anyone who is willing to apply htemselves to the process, although it is not in any sence easy or guarrenteed. To earn a passive income in this manor you must have dedication. Most people who create large incomes through royalty income spend years developing their craft and expanding their fan base.
There are two things anyone will need to succeed in making passive income through royalty income:
- Expertise in some field
To be successful in producing content which will produce royalty income you need to have some type of expertise. Something which others will find entertaining or informative. Others have to have a reason to watch or listen to your content so you will have to provide something of value which will draw others to you.
- Expertise in the chosen platform
As mentioned above there are many platforms which can be used to provide access to your content by the general public. Without this type of access it will be impossible for you to earn any passive income from your creative endeavors.
The challenge here is that each platform has a specific methodology which needs to be followed for best results. This methodology is a combination of how the platform works and how the public uses it so to be successful you must be a student of the platform and the audience you are trying to reach.
Passive income from business ownership
Perhaps the most difficult but most reliable method of creating passive income is through business ownership. Owning a business is a high stature position. It allows the owner the opportunity to earn as much as they want, work whenever they want and with whomever they want, at least that is the dream.
The reality is usually much different. Most businesses fail in the first year but for the ones which survive they can be a good source of passive income when the business is managed well. The problem with most businesses is that they are not businesses, instead they are people who rent themselves out with a tool.
These types of business include service type businesses with few employees. Here the business owner is working in the business with employees on a daily basis. Not an example of passive income.
For a business to produce passive income it must be a business which does not need constant input from the owner. This means the business owner needs to work on the business not in the business. This sounds like a pat answer to how to make passive income from a business venture but the difference is immense.
The difference between working in a business and on a business
When working in a business the immediately important issues get dealt with in the most expedient manner possible. A machine breaks or a part is damaged, maybe a customer is unsatisfied. Whatever the problem, a solution is provided, fix the machine, get another part or provide a discount or extra attention to the unsatisfied customer.
These are normal reactions to the problem and cannot be faulted but when the business owner is working on the business they go further and ask why the machine broke or the part became damaged. Was the customer at fault or was it a problem with the system or customer service procedures?
When the business owner starts to work on their business it will change radically and eventually produce a business which can and will run without their constant attention. At which point it will become a truly passive form of income.
Passive income is not free lunch
Every person who has achieved any amount of success no matter how fast it appears they have risen from relative mediocrity to success has spent long hours working on their goal of success. Sports professionals who make it to the professional leagues, the singer who gets signed with a major label or the writer who writes a best selling book have all spent time, money and sacrificed pleasures to succeed.
Those who have achieved success in developing passive income are no different. Most passive income comes in little bits at a time. To put this in perspective consider:
How much money is needed to produce $1.00 in passive income
Say your first goal is to produce one dollar in passive income through investing. To achieve this you will have to purchase part of a business which is producing a profit and is willing to divest some of that profit to its shareholders on a regular basis.
If the business pays out within the average S&P 500 index they will pay 2-5%. Let’s take the high end just for example:
Needed investment = $1.00/0.05
Which means to earn a dollar passive income through this method you will need to invest $500. Now there is no way anyone can call $1.00 a viable passive income so to make it viable you will at least have to make $1.00 a day.
To make a dollar a day you will need to have $500 X 365 or $182,500 invested in the highest dividend producing companies in the market. Now this is not impossible, in fact many people achieve financial freedom through investing, the point is that it takes time and effort to achieve it.
How much creative content is needed to produce $1.00 in passive income
Creative content can be anything from entertainment products (books, songs, performances) which is made public for commercial gain. For this article the prospect of becoming famous will be ignored, again not because it is impossible but because it is not guaranteed.
Instead it will focus on developing content for the various platforms available to everyone and with time and dedication how they can be used to produce passive income. The three methods covered here are written content, video content and podcasting.
Written content
This is content written on websites, in forums or social media platforms. Although there is a big difference in the three methods we will use the highest average of the three which is: $20.00 per thousand views. Following the above procedure to earn $1.00 with written content you will have to put your written content in front of 1,000 people.
Now there are some caveats which we will ignore for now which are the minimum number of views you will need to be able to qualify for a monetization program or the genre you are expert in.
To earn $1.00 with a $20.00/1,000 views the content will need to be viewed 50 times. Now again $1.00 cannot be considered passive income but if we say a dollar a day qualifies you will need to produce content which will be viewed a minimum of 50 X 365 or 18,250 times in a year. Again not impossible but will take dedication and commitment to learn how to write for your audience.
Video content
The most used video platform is youtube so it will be used as the example here. In 2121 the average video produced $5.00/1,000 views. Much lower than written content but for those who would rather perform in front of a camera then write an article this is a great option.
At the rate of $5.00/1,000 views you will need 200 views to make $1.00 or 73,000 views to make a dollar a day. Now, many videos on Youtube have many more than 73,000 views but the average Youtube video gets about 8,000 views in its lifetime so again not impossible but it will take commitment and dedication to reach this point.
Audio content
Audio content can be anything from music to pure information content. Platforms like Spotify are the most popular and can produce a strong income for those who are interested in producing purely audio content.
Spotify pays out about $3000/1,000,000 streams. Or $3.00/1,000 streams depending on the length of the audio content and the mix of paid and free streams. This means that audio content will need to be listened to 334 times to earn one dollar.
To get to one dollar a day you will need to have 121,910 streams in a year.
So what is the point?
Passive income is not easy income, it requires work, effort and time. Only those who are committed to the process and are willing to sacrifice some of their time and energy to develop passive income.
Why Passive Income is Important
There are two aspects to passive income.
- Develop resources which produce ongoing income for current use
- Develop resources which have value because of the cash flow they produce
Investing money for future use is a great idea. Having enough money to maintain a certain lifestyle without having to work provides an enjoyable lifestyle for some people but it is difficult for many people to maintain a long term saving plan which will provide enough income for them 20-40 years down the road. There are too many other factors which delay or reduce the savings program.
By developing a passive income through the development of a paying investment program, royalty income or business income the individual is much more motivated to put in the time, increase the value of the passive income and resist the degrading of the resource.
As a passive income resource grows the resource itself increases in value. Whether it is a stock portfolio, real estate properties, royalty producing products or a business which provides a positive passive income they are all worth something to others. These resources can be sold at any time.