Legendary investor Warren Buffett once said: “If you don't find a way to make money while you sleep, you’ll work until you die.”
No one wants to work until they die, but people struggle to figure out how to make money while they sleep.
In this post, I’m going to cover 3 proven ways to generate passive income.
The first thing to realize is that “passive” is a bit of a misnomer.
Truly passive income is rare, such as inheritance, usually it comes with a varying amount of effort to set it up or manage it.
Typically, the less effort you put in, the less money you’ll make.
Whether it be attaining the initial capital, researching the investment, effort to build or ongoing management, most passive income requires some level of ongoing effort.
The goal isn’t to put in zero effort, but to multiply your money out for the amount of work you put in.
Let’s get into it:
1. Dividends
Dividends are your piece of a company’s profits.
They are paid out at regular intervals and provide a stable level of income.
For example, Verizon is a blue-chip stock that pays out $0.65 per share. It’s annual yield sits at a healthy 7.9%. If you held $100K in $VZ, you’d make $7,900 in dividends in a year. Their payout schedule is quarterly, so that’s a passive income of $1,975 every three months.
For dividends to be effective, you need a fairly large amount of capital to invest.
It’s important to take this into consideration before pursuing this route.
2. Rental Properties
Real estate has been a vehicle for passive income for centuries.
If you want to be hands-off, you can pay a percentage of your profit to a rental property manager.
Always remember that location is everything in the real estate world. Be sure to go after a properties that make attractive rentals.
Imagine a young professional with a high income, where would they want to live?
A 1 bedroom near a booming metropolis is probably a wise investment.
Now, if you only put down 5% and have a high mortgage payment, then almost all of your passive income will be going into paying it down.
This approach builds your equity.
If you want cash to use every month, then you need a lower mortgage payment, which requires more upfront capital.
A major bonus of rental properties is they unlock many tax-efficient strategies for you to implement.
3. Digital Products
The first two options are capital-intensive.
But what if you don’t have a ton of liquid capital laying around?
If this is your situation, then you need to look at more time-intensive routes that use your mental capital.
I love digital products because there is a big upfront time investment, but once they are created they can generate passive income indefinitely.
For example, I spent $100K on a finance degree. If I synthesized those 4 years into a 12 week digital course that hit all the highlights, I’d feel comfortable charging $1K for lifetime access. 100 customers later and I paid off my degree.
The best part is residual sales. By driving traffic to my website where I have an attractive sales funnel for the course, let’s make a conservative estimate and say I only sell 5 courses per month. That’s a passive income of $5K per month, forever!
This is a relatively high-ticket course, but you can make a 30 page e-book and sell it for $5.
The lower the price, the more units you need to sell to reach your passive income goals.
Once you are up to $100 of passive income per month, you have officially learned how to make money while you sleep, just like Mr. Buffett recommends.
You’ll see how possible it is to grow your passive income, now you need to stick with it and let the snowball effect work its magic.
Now, let’s get investing!
In summary, those are 3 proven methods for building up your passive income.
Instead of trying to replace your current income with passive income overnight, start with an attainable goal.
If your passive income currently sits at $0, figure out a way to get it to $100 per month.
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Legendary investor Warren Buffett once said: “If you don't find a way to make money while you sleep, you’ll work until you die.”
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