Passive Money Making Ideas

First Steps--Slow and Steady

We will focus on a few different passive money making ideas in depth. To get started here are several ideas that can start making you money now.

1. Get out of debt

This should be everyone's number one. Once you are out of debt, you will notice a huge bump in your passive income. That’s because you won’t have to work any harder yet you can take the money you used to send off to your creditors and invest in one of the ideas below. That way your money will create even more passive income. 

The nice thing about getting out of debt is that you can do so by making more money, spending less or a combination of the two. I love this idea and if you are currently in debt I suggest you move getting out of debt to your number one priority. 

2. Investments

This is number two. Make your money work harder. After paying off debt and building up an emergency fund we are safe to start making our money work for us. Your first step should be maxing out any tax advantaged accounts available to you, such as an IRA if you are in the US. Compounding interest is your best friend. Start it now. 

3. Real Estate

While there is a significant barrier to entry due to the cost of acquiring property, if you do have the capital this is a great way to make your money work for you. Several rental properties can bring in a significant amount of income every month and if you farm it out to a property management company it can become truly hands-off.

4. Social Lending

Social lending is a business that finds investors and borrowers and puts them together without using a bank. The loans are uncollateralized meaning they are unsecured and higher risk. You would only consider investing in these loans if you were comfortable with that risk.

Probably the best company to use for this is Lending Club. I like this company but I am not a huge fan of putting serious dollars into this as an investment because the loans aren’t backed by assets. But you might want to give it a try if you can tolerate the risk.

Get Rich Quick

This is where the good stuff starts. We want to make money faster. Not wait on the stock market or spending huge amounts of capital on real estate. So how do we generate passive income with low investment? We use up a little bit of our time to get some of the following ideas rolling. Then sit back and watch the money come in.

5. eBooks

Information is the best product to sell because you create it once and you can sell it forever. These days it’s super easy to create your own eBook and market it through Amazon. Anyone can do this.

What are you expert in that others need information about and are willing to pay for? If you don’t have that expertise, you can easily pay someone to write an eBook for you. But you must find the need first.

Don’t invest your energy into an eBook unless and until you are sure there is a demand and you have a good solid marketing network set in place.

6. Blogging

It’s a passive income stream somewhat in that posts you wrote years ago still make you money. Blogging can be extremely rewarding. But it is hard work on the front side. Don’t start this unless you are ready to see it through. This is one area where ad revenue will come into play. We will look into tools like AdSense and others more in depth in a later post.

7. Create an Website

Websites can be created by anyone these days. You don't even need to know how to program with all the tools and packages available. Look into Bluehost or GoDaddy who offer domain name registration and hosting services. Create a forum, blog, or even an eCommerce site that utilizes dropshipping.

8. Create Expert Videos

If you have special expertise in something that others value, why not create and sell videos and DVDs? Create teaser ads on YouTube and use those to market your full product line. Like most of the ideas above, the trick isn’t to create the product but to have a solid marketing program in place.

If your expertise is in creating some physical product, go to specialty stores that sell the materials and/or equipment used and recruit them to market your products for you (for a piece of the action of course).

9. Run a Class

Contact your local adult education department and offer to run a class on something you are expert in. Video tape the course and sell it to the students along with workbooks that you create. Then, set up a blog and create a following of people who are interested in this subject. Once you do, offer the course materials (DVD and workbooks) to your followers.

10. Use Cash Back or Reward Credit Cards

One of my favorites, saved for last. While this is different than the other strategies, there is definitely some value here if you are responsible with your credit. This won't make you rich but it could send you on a trip around the world for free. Keep it simple and go with a cash back card and see the passive money making happen just by buying the things you were already buying with cash or a debit card. Just make sure to pay your balance in full every month or the interest charges will wipe out any of that income you earned. If you are into travel, some great deals can be had with travel cards. Sign-up bonuses and churning rewards cards can get you some crazy redemptions with very minimal spend. More on this in a future post.

The Six Stages of Financial Independence

There are a lot of misconceptions about financial independence and early retirement. People think you must be "rich" or have a high income if you're able to quit your job before age 50 (or 40 or 30). And sure, having a high income helps. But the key skill, of course, is the ability to obtain a high saving rate. 

When I first started learning about smart money management, I thought that financial independence meant just one thing: Having enough cash saved that I'd never have to work again. Financial independence actually exists along a continuum. It's not all-or-nothing, but a series of incremental advancements. It's a process.

Each stop along the road to financial freedom grants you greater autonomy and self-expression, and these are qualities that contribute to happiness.

The first stage (the "zeroeth stage") is actually a lack of financial independence. Stages 1-3 are what I call the "surviving" stages. Most of your work in these stages involves day-to-day household operations. You're building a foundation for greater financial freedom in the future. Stages 4-6 are the "thriving" stages. It's here that you have enough money to make choices that support higher purposes, whatever that means to you.

Let's look at each of these stages in turn.

Stage 0 - Dependence In this stage, your lifestyle depends on others for financial support. We all start here. We're born this way. How long it takes to break free varies from person to person. You're in this stage if you rely on financial support from your parents. You're in this stage if you spend more than you earn (if you're digging deeper into debt). Basically, if you're not earning a "profit", you are dependent on somebody else. You are not financially independent.

After you start earning a profit -- and again, this means you're earning more than you're spending -- you start down the road to financial freedom. Up first are the three stages of "surviving".

Stage 1 - Solvency Solvency is the ability to meet your financial commitments. You reach this stage after you no longer rely on anyone for financial support. This means your income is greater than your expenses (you're earning a profit) and you're no longer accumulating debt. (You might still have loads of loan payments, but you're not adding anything new to the stack.) Some people reach this stage in their teens. Some never reach it.

Stage 2 - Stability You achieve stability after you've repaid your consumer debt, established some emergency savings, and continue to earn a personal profit. It's possible that you still have some "good debt" -- college loans, a mortgage -- but you've paid off everything else and you've built a buffer of savings to protect you from unfortunate events.

Stage 3 - Agency At this stage of financial independence, you have the ability to live and work as you choose. You've eliminated all debt (including student loans and mortgages) -- or you could do so if you wanted. (I know first-hand that there are times you might choose to take out a mortgage even if you could buy a home with cash.) You have enough saved that you could quit your job at a moment's notice without hesitation. 

It the final three stages on the road to financial freedom, your concerns move from surviving to thriving. Money is no longer a safety net. Now it's a tool to help you build the life you want for you and your family. Truthfully, that's all money ever is -- a tool to help you pursue meaning -- but most people don't understand they should use it that way. Knowing what gives you meaning and purpose is a vital part of financial freedom. I strongly believe it should be the starting point on this journey.

Stage 4 - Security You reach the Security stage when your passive income can cover your BASIC needs. That is, based on how much you have saved and invested and are earning passively, you could live a meager existence for the rest of your life without worrying about money. Even if you never worked again, you could afford simple housing, basic food, essential clothing, and health care. 

(For our purposes here, let's use a simple metric. When I say "investment income", let's just divide your total net worth -- what you own minus what you owe -- by 25. That number is very roughly how much you could draw down each year indefinitely. This isn't exactly right, but it's close enough for the point I'm trying to make. So, if you have $100,000 in saved and invested, we're going to assume you could take $4000 per year for the rest of your life. If this bugs you, substitute a ratio that makes you feel more comfortable.)

Stage 5 - Independence Your investment and passive income can support your current standard of living. The money you have saved and invested would allow you to live like you do today...until the day you die. It covers the basics and creature comforts. 

Stage 6 - Abundance In the final stage of financial freedom, you have "Enough -- and then some". Your passive income from all sources won't just fund your lifestyle forever, but it grants you the freedom to do anything you choose: indulge in luxury, build a business empire, establish a charitable foundation, explore the world, build a space program to rival NASA.

Here's the bottom line: The more money you save, the more freedom you have, and the more risks you can take. As your financial independence increases, you chip away at the wall of worry. You're able to make decisions proactively rather than reactively.

I think this roadmap is useful because it makes the concepts of financial independence more achievable for a lot of people. When I talk to the average person about retiring early by saving half her income, her eyes glaze over. She thinks, "No fucking way I could ever do that." It's too great of a leap from her current existence.

What is Passive Income?

Creating passive income. This is one of the key steps to financial independence and early retirement. But what is passive income?

The basic idea of passive income is that it is money received with little or no effort required to maintain the flow of income once the initial work has been done.

Some examples of passive income include rent from real estate properties, investment income, profit from business' that you do not actively run, and ad revenue from websites. This is just a few to get us started. We will go over ways to generate passive income in detail in later posts.