What Is Passive Income?

What Is Passive Income And How Do You Create It?

“My rich dad taught me to focus on passive income and spend my time acquiring the assets that provide passive or long term residual income…passive income from capital gains, dividends, residual income from business, rental income from real estate, and royalties.” — Robert T. Kiyosaki

After fielding and lobbying an extensive array of questions related to generating passive income streams, and after having written copiously on the subjects of making money online, I thought it was important to provide an in-depth explanation of what passive income is and what it isn’t.

If you search the web for passive income ideas, you come up with a vast number of posts attempting to expound a variety of methods for generating this style of income. However, what you might come to find is that a large number of those posts that speak about the various methods, such as running a drop-ship site, aren’t actually passive.

The truth? There are very few fully-passive ideas for generating income. Even when it comes to things like real estate income, there is maintenance involved. Want to start a blog to generate passive income? Good luck with building any respectable amount of passive income, because it takes years to create an effective platform and audience before that money comes rolling in.

Clearly there are numerous ways (both fast and slow) to generate income passively. However, before diving into the types of passive income that you can generate, let’s really understand what it is. Passive income, for all intents and purposes, is income that’s automatic to a large degree.

The difference between active income and passive income is that the former requires the constant input of time to generate revenues whereas the latter does not. In contrast to these types of income, there’s also portfolio income, which is passive in a sense and not passive in another sense. However, for the purposes of this discussion, we’re going to focus on understanding what passive income is and how you can create it.

Clearly, most of the world is engaged in active income activities. Not passive income. They actively trade their time for money. Plain and simple. When they stop working, they stop earning. But you don’t want to do that. What happens when you fall ill or get in an accident and you can’t work? Clearly, you can’t make money. With passive income, you can make money (online or otherwise) whether you’re working or you’re not working, but it takes a large upfront investment of time at the outset.

To generate a sizable stream of passive income and to make money while you sleep, as the saying goes, you need to put in a large amount of work at the front-end. And you know what? It’s not guaranteed whatsoever. You could end up putting in all that work and not generate a respectable amount of cashflow. It could fall flat on its face. However, if you know what you’re doing, then you’ll likely succeed over time.

If you’ve recently failed at something, or you’ve failed repeatedly, and you were left without an income or a safety net, then my heart goes out to you. It truly does. But that should help highlight the importance of creating passive income streams so that you don’t find yourself in that situation in the future.

So, aside from being automatic to some degree, what else does passive income involve? It involves the configuration of a stream of income that will continue to pay you even without the added input of time. However, to generate that passive income, you either have to invest lots of time (i.e. sweat equity) or lots of money.

Passive income can be generated through dividend stocks, for example, but it would involve a large upfront investment of capital, which most people don’t have. However, with enough shares in a stock, dividends can produce upwards of six figures in income per year, enough to easily live off of. But that takes a huge investment of capital.

Real estate is somewhat akin to this. In order to get a passive income stream up and running from real estate, you need to purchase income-producing property. This can be residential, commercial or industrial real estate. Either way you look at it, the income comes from rentals from these properties, but does require some input of time or money in an ongoing fashion in the form of maintenance.

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How To Create Passive Income Streams

For most people, understanding what passive income is doesn’t involve rocket science. It’s pretty clear that passive income is easy to understand. However, it is not easy to produce or create by any means. For example, you’re reading a blog that helps to produce a very sizable passive income. But it didn’t happen overnight. Blogs needs hundreds of thousands to millions of visitors per month if you’re going to create any respectable amount of income.

However, most people do turn to online mediums to create passive income. I’ve discussed a number of passive income ideas in the past, but I wanted to dive into more detail here since so many people have been messaging me and writing to me about this. Clearly, online passive income is the Holy Grail of making money via the internet.

So how do you do it? Now that you understand what passive income is, how do you actually go about creating a plan to produce this elusive form of income? I say elusive because many people try but fail in their efforts to produce revenues that are automatic by any means. It’s not easy whatsoever. But it is well worth it.

 

Step #1 — Select Your Passive Income Idea

Your first step in creating a passive income stream is to pick an idea. What type of passive income you go with is an individual decision and it involves your personal unique situation. If you have the capital to go with real estate, dividend stocks or business investment income, then great. If not, you have other choices.

For most people, the passive income type they select will likely involve some maintenance and it will almost certainly be generated through online means. There are a number of ways to create the automatic income online and they often don’t require a huge upfront investment, but don’t expect them to be straightforward whatsoever.

 

Step #2 — Set Goals

Your next step to produce passive income is to set a goal. Understand that it’s not going to be easy and give yourself a good deal of time to bring your passive income idea to fruition. Decide, today, right here and right now, that you’re going to generate passive income and the type and style of passive income you’re going to generate.

The reason why it’s important to write down your goals is because studies have confirmed that setting your goals on paper is far more powerful than setting them in your mind. In fact, the people that tend to set goals arbitrarily in their minds, often fail. And you don’t want that. Write them down and go into detail about those goals.

 

Step #3 — Plan Your Steps

Once you’ve decided on a type of passive income stream and you’ve set some goals, you need to plan your steps. How will you get from Point A to Point B? What are the necessary actions that you’ll need to take? How much research will you need to do to learn the proverbial ropes?

Planning things out on paper will help to bridge that gap between a dream and reality. Nothing will materialize quickly. But, with constant and persistent action, over time, things will come to fruition. As long as you know what it’s going to take to get there, you’ll set yourself up for long-term success.

 

Step #4 — Have Income Backup Plans

Okay. Creating passive income is a monumental undertaking. That much is true. However, it’s far better to exchange your time for work that will constantly pay you repeatedly than it is to exchange it one time and only get paid once. But you do need some sort of backup plan. Throwing yourself into passive income without a backup is foolish and you’ll likely feel the pain.

However, if you do keep your active income work but work on passive income on the side, you can slowly and steadily build it up. For example, if you’re starting a new blog, don’t quit your day job. You can make tremendous money from blogging, but not many people do, so be sure you have a fallback plan until that passive income source is paying your bills.

 

Step #5 — Investigate Successful Online Marketers

Most people that have experienced some level of success in the realm of online marketing have done so primarily through passive income. Online marketers understand the importance of passive income and work fortuitously to ensure that they have a number of passive income streams that they can rely on.

To succeed, you have to become like an investigator. What are the top online marketers doing to generate passive income? How have they configured things like their sales funnels and their email scripts to sell digital products on autopilot? How are they positioning their content and how does it engage and filter their audience to purchase their products or services?

 

Step #6 — Join Marketing Groups Online

Another step in the process to generating passive income is to join groups with online marketers on platforms like LinkedIn and Facebook where everyone congregates to share their experiences and knowledge. You might be surprised at the morsels and gold nuggets that you uncover in these groups.

Don’t be afraid to ask advice from these people. If you’re experiencing some frustrations, voice them. Everyone goes through the ringer when trying to create a passive income stream. Simply put, it’s not easy by any measure. Communicate and chat with others for advice, strategies and tactics for helping you along your journey.

 

Step #7 — Find A Mentor

No matter how well you understand passive income or know how to leverage the right ideas to produce automatically-generated revenues month after month, it’s easy to hit stumbling blocks and get frustrated. Sometimes, groups don’t do it and we need to find and connect with mentors.

Granted, finding a good mentor that’s seasoned in the online marketing field is quite difficult. You’ll find many that portray success but very few that have actually achieved it. Find a successful person in your niche or industry and pitch a mentorship to them. You never know, they might just join up with you. However, don’t get discouraged if you don’t find someone right away. Keep searching and staying persistent.

 

Step #8 — Scale Like The Wind

The final step in creating a significant passive income stream is to scale. Once you find something that works, scale like the wind. Be sure to measure and track along the way and see what’s working. However, when you do latch onto something that’s producing even a little bit of cash for you, try to figure out how you can scale that offering or revenue stream.

Just about everything in the passive income field can be scaled. Whether we’re talking about ebooks, courses, audiobooks, ads that lead to squeeze pages and everything else in between, find a way to scale and scale like the wind. Eventually, over time, you’ll find your passive income activities to begin producing some significant results. But don’t get discouraged if it doesn’t happen right away. Stay persistent and stay committed if you want to ultimately live the life of your dreams.