woman sitting on beach in bikini while earning passive income

Make Money While You Sleep: The Basics of Passive Income

Would your life be easier with a few more dollars in your pocket? Do you want to make money like the rich? I’ll tell you a secret. You can start today! Earning money like the rich has nothing to do with securing that next promotion or becoming a doctor, lawyer, or CEO. It isn’t about putting in 10 extra overtime hours and tying your success even more closely to your employer’s success. Earning money like the rich means cultivating ways for your talents and dollars to work for you while you sleep! In other words, you need to learn the basics of passive income!

What is “passive income”?

Passive income is money you earn without the need for continued work. It is the “set it and forget it” method of building wealth. This has many obvious benefits, including reducing your sole reliance on your employer, freeing up your time to develop new sources of cash or enjoy your leisure time, and allowing you to control your own destiny and income level. Many early retirees are able to quit their 9-5 on the basis of their passive income streams!

Sounds pretty great, right? So, what’s the catch?

Passive income is not simply signing up for some benefactor to send you money on a regular basis. (If you find such an offer, you may want to check the spam filters on your email…) Passive income doesn’t mean “no work,” instead, it means “no long-term work.” Developing sources of passive income requires an upfront commitment, with the range of time and money required upfront varying widely. It requires investing in yourself and delaying the gratification of substantial pay off into the future.

Why do you need passive income?

Besides the clear attraction of regular checks hitting your bank account from minimal work, passive income has many benefits that should make it a major focus in your financial life. Passive income, when implemented effectively, creates increased financial security, allows you to build wealth, and moves you towards financial freedom.

Increased financial security

Warren Buffett passive income quoteNo matter how great your annual performance reviews are, we’re never really sure what will happen with our jobs. Maybe our company hits a rough patch and are forced to make layoffs. Maybe they weaken your benefits to save the company money and effectively lower your total compensation overnight. Unfortunately, we just don’t have control of all the moving pieces.

Developing sources of passive income diversifies our cash streams. It creates income we can directly control. The more methods of income we have, the less likely it is that a setback in any given one puts us in financial straits. The same way we wouldn’t put all our savings into just one stock, we shouldn’t depend on our income to come from all one place. Passive income can act as your safety net!

Compounded wealth building

Passive Income Robert Kiyosaki quoteThe personal finance version of “the chicken or the egg?” has to be, “Should I earn more or save more?” While the first focus for those in consumer debt or who struggle with living paycheck to paycheck should be to save more and get their financial house in order, there is only so much you can cut your spending. Alternatively, there are endless ways to increase your earnings!

Passive income dramatically increases the number of hours in a day that your skills can work for you. Instead of being limited by the 8-hour, Monday-Friday workday, your skills can work for you around the clock! You can continue your career while benefitting from the extra income generated by your passive sources.

In addition, if you can maintain the discipline to continue to within your current budget, passive income allows you to compound your wealth generation. Put the money from your passive income sources back into new sources of income or into investments and watch your diligent workforce of dollars grow!

A path to financial freedom

If you won the lottery this weekend, would you T. Harv Eker Passive income Quoteshow up to work on Monday? Is your job really a reflection of your passions, or just a means to a paycheck? Many of us, whether we are satisfied in our jobs or not, would choose to spend more time with family, travel, or pursue hobbies and new skills instead of working for someone else. Individuals who are committed to passive income can buy themselves that freedom.

It takes work and often some years of developing your passive income streams while still working full-time. A difficult feat! But as soon as your passive income surpasses your expenses, your job becomes a choice, not a requirement. All of the sudden you have full control of all the hours in your day. And isn’t that what the allure of wealth is all about? Not the butlers or the yachts, but the freedom?

Getting started on your passive income journey!

There are quite literally hundreds of ways to earn passive income. Selling printable craft patterns or organizers on Etsy, investing in the stock market, writing and selling an eBook, acquiring rental properties, selling your best photos on a stock photo site, and so much more! The key to getting started is to determine what inspires you. Developing your sources of passive income takes work, and it helps if you focus on things you are passionate about. Once you decide what you’re going to focus on, you have to decide how much time you’re willing to commit to the upfront development, set realistic goals, and stick to it! Here are some simple steps to help you find your first passive income venture.

Simple steps to your first passive income:

  1. Determine your skills and what inspires you.
    We all have unique talents that we can take advantage of to help us find a solid source of passive income. Think about what you would do with your time if you didn’t have to work, and follow that passion! And if you keep getting stuck thinking you don’t have any marketable skills or talents, remember that there are individuals who make thousands of dollars a month in advertising income posting YouTube videos of themselves playing video games…
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  2. Reset your thought process to passive versus active income.
    Our education system, our parents, our whole culture is built on the premise of active income. We work for money. When we need more money, people tell us to get a part-time job, not build a business. So, once you’ve found your passion, you’ll have to think a bit to break that mold.For instance, if your skill is being a beautiful guitar player, you don’t want to start a business teaching guitar lessons from your home. That’s active income! Instead, think along the lines of creating an online course or developing a YouTube channel with ad revenue. Income sources where you do the work once, not over and over.
  3. Set realistic goals.
    You aren’t going to develop a full-time income from passive sources overnight. It would be nice, but you have to put the upfront work in! If you’re new to passive income, you have to set realistic goals. Set your sights on $100 a month in earnings from passive sources and grow from there. This is a journey, not a sprint.
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  4. Give yourself a timeline to test your venture.
    Not everything you try will work, but it will take time for you to know whether anything is a success or failure. Maybe you develop what you think is an amazing printable organizer to sell on Etsy but no one buys it. It could be because you’re a new seller who hasn’t figured out SEO (search engine optimization) and marketing. But it could also be because no one wants your product. Either way, it will take you some time to figure it out.Before you start your venture, decide how long you’re willing to give it before you determine if it is viable or not. 6 months? A year? When I started Mama Fish Saves, I decided to treat it like a business for a full year before deciding if I was on the path to success or if this was just meant to be a hobby. Time will tell where we’ll end up!
  5. Don’t be afraid to spend some money, but do so responsibly.
    The old saying, “You need to spend money to make money,” holds some modicum of truth. If you want your passive income streams to come from dividends from stock market investments or interest from peer-to-peer lending groups like LendingClub, you’ll need some money to get started. But in today’s technological age, there are many pursuits that require little to no initial investment.Throwing good money after bad won’t help a poorly written eBook run better or make a poorly thought out dropship business take off. However, finding smart places to spend a bit of money can help you succeed. Start small and have a business plan for each expense. What return are you expecting to see and how will you tell if it is successful? Over time, cut any expense that isn’t pulling its weight. You’re in this to make money, not spend it!

Pursue passive income and create your financial freedom today!

Passive income is a key to building wealth and creating financial freedom. It allows your skills and money to work for you around the clock, increasing your earnings and diversifying your income streams. It is the basis of books best-selling books like The 4-Hour Workweek, Rich Dad, Poor Dad and The End of Jobs, which detail how to escape your 9-5. Most importantly, passive income allows you to pursue and profit from your passions. Start today and live a life most only dream of!

Are you pursuing passive income? What income streams are you cultivating and how is it going? Let me know in the comments so we can learn from each other!

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14 thoughts on “Make Money While You Sleep: The Basics of Passive Income”

  1. Hi Chelsea! I’m a big believer in passive income and setting up multiple streams of income. The thought of having my entire financial well-being dependent on the whims of a corporation that could cut me loose at any minute scares me. Plus, more income helps you reach your goals faster! Thanks for sharing.

  2. I can’t say someone is wealthy if he is not having enough passive income that can successfully foot his bills on a continuous basis. It doesn’t matter how much the person earns on corporate job.

  3. I love the idea of passive income! I was earning pocket money from my old blogs back when I didn’t even know what passive income even meant 😀

    Today, I’m doing the same thing, only in a more organized manner. It helps that there are so many resources out there we can all learn from!

    The only downside to creating a passive income stream is becoming overwhelmed with so much information. Sometimes not knowing exactly what you’d like to pursue can be confusing, which is why I think many give up on the idea.

  4. The thing many don’t appreciate is that it does indeed require a lot of work up front. But hard work alone often won’t cut it. You will also need to be efficient and creative in many cases.

    If it’s ebooks, for example, you must put in the work to write them. But you must also be creative in writing something people want to read and be able to market it effectively.
    If it’s dividend stocks or real estate, you must work at a job, for example, to earn enough capital to put to work. You may also have to find creative ways to cut your expenses so that you can save the required capital. Then you have to select the right investments.

    1. Totally agree. You need to find the right passive income source that works for you. But I do think everyone has a talent or passion that could help them develop some passive income.

  5. “And isn’t that what the allure of wealth is all about? Not the butlers or the yachts, but the freedom?”

    Nailed it. Nothing like owning your own time. And nothing like passive income to make time-ownership a reality. Great post.

  6. When our family moved overseas my wife was the “follower” and unable to recreate her corporate job. In about 2.5 years she has grow our ecommerce stores to 7 figures in revenues and 5nfigures in monthly profit–almost all while we sleep. She also works from the soccer field, ice rink, or when it fits her lifestyle. She does all this while managing a remote team.

    Passive income is our future! Great read.

    1. That is incredible, Ian!! Good for your wife! That is a pretty inspirational achievement – I would love to hear more about her journey.

      Thanks for reading and sharing 🙂

  7. It is so true that most jobs are not secure. Your annual performance does not show anything beyond the ability to do your job or not. It does not promise an employee anything. The best way to build security is to build passive income streams. Start with passive investments like index funds. After that, try branching out into some other side gigs.

  8. There is a difference between “additional sources of income” vs. “passive income.”

    Additional Sources means you have other work… Etsy, walking dogs, house sitting, etc., in addition to your (hopefully) regular job.

    Passive Income means getting income from assets previously deployed like getting dividends from money previously invested.

    Both are great and beneficial, but making stuff to sell on Etsy is not passive, you need to do real work to make those things to sell.

    Yes?

    1. Yes! Absolutely. But I’ve interviewed some highly profitable Etsy store owners that spend very little time on their stores because they have created a digital product (or set of products). It took upfront work, and then they had to optimize their store for SEO, but from then on it operated mostly in the background. Etsy 99% of the time isn’t passive, but it can be.

  9. Dividend income is something I’m trying to grow. I would like to get into the real estate investing market but I’m looking for a better entry point. Most of the money I make in my sleep comes from capital appreciation of stock. Passive income I have found, usually requires some labor of love.

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