I still remember the first time I earned any substantial amount of passive income. No, I am not talking about the pitiful two or three cents you earn a year from your savings account — I mean really income. I remember thinking when that money hit my bank that this was about as close as I would ever get to experiencing magic. Let me tell you that ever since that day, I have been on a quest to generate as much passive income in my life as possible.
Fortunately, since that first taste of earning passive income, I have been successful in building out many new streams and I’ve noticed that each new stream requires three important components. What are they? Let me share them with you now!
The idea of earning passive income is one of the most glorified concepts in the world of finance today and it’s for good reason. I don’t think I am surprising anyone when I say that most people I talk to dislike their jobs and the thought of being able to build up enough passive income streams that would allow them to leave their job is incredibly endearing.
Now, I will say that in the last few years, more and more people have become aware of the power of passive income but there are still many people who think that there is no such thing as passive income and this is a shame. It’s a shame because there are many of us out here living our best passive income lives while they slave away chained to their active income ways.
I know for myself personally, my foray into the world of passive income started three years ago when I was working in an incredibly demanding job and was way more stressed than I should have been based on the amount of money I was making. I remember that despite working 60 hours a week, I was barely able to cover my bills and let me tell you I was not living an extravagant lifestyle by any means. Basically, I was forced to generate more income and given that I was working so much, I had no choice but to learn to earn passively.
I’ll admit that I was far from the quickest learner when it came to making passive income. It took me about 2 years to start earning 4-figures a month in passive income. Fortunately, every time I wanted to quit, I would tell myself that if I didn’t figure things out, I would be stuck in that low-paying, soulsucking job forever and that was simply not an option I was willing to accept. Honestly, I believe that if I would have understood what it took to actually start generating passive income, it would have made the process ten times smoother. Not that I would have reached my passive income goal any sooner but at least I would have understood the key elements of passive income and how I needed to combine them to see the results I wanted. Fortunately, over time I started to uncover these key components and the first was identifying and cultivating a source of value.
Number 1: Value
Unless your grandmother gives you money or you find a $20 on the bus, generally speaking, in order to earn money we must provide value. To some, this may seem obvious but to others, this is an important concept to grasp in their quest to earn passive income. A great example of exchanging value for money is in your current job. Let’s say you work as a data clerk. The value you provide is in the form of the data entry work you do and in exchange for this value you provide, your employer promises to pay you every two weeks. Again, this is obvious but is a key component you must understand when starting to earn passive income because when you are earning passive income, you need to learn how to provide value to others without you being actively involved.
At least in my own passive income journey, when I made the switch in mindset from, how do I make passive income to how do I provide value without my involvement, the game totally changed. I began to ask myself what knowledge, skills or assets do I own that I can use to start making income while I eat, while I exercise and of course while I sleep. So, for me, the answer was obvious. Given that I am a CPA and am constantly exposing myself to new financial information, I figured that starting a YouTube channel around financial education would be a great way to make passive income.
Now, like I said, it took me longer than the average person to start to earn any real passive income but fortunately, I had the realization to offer value that I already possessed to build out new streams of passive income.
Unfortunately, many people overlook the skills, knowledge or assets they already possess when trying to make passive income. They think they need to learn a brand new skill or re-invest the passive income wheel to start making some of that sweet “while you sleep” money. Chances are you already have a value base you can use to earn passive income, you just haven’t realized it. For example, you may have taught English abroad for 3 years after college. Some people would see this experience as not being passive income friendly but I bet tons of young adults would love to take a course on how to find jobs and set up a career teaching English overseas and given that you have this experience, you’re the one that could teach them through a blog, an online course or the like. Alternatively, you may be a homeowner who’s got one too many rooms in their house and your quickest path to making money while you sleep is by taking on a roommate.
In short, the first component to making passive income is to identify what value you have to offer and how you can package said value to make money without being involved.
Number 2: Resources
Moving on, the second core component in making passive income is to understand that earning money while you sleep will take one of two primary resources. These primary resources are time and money and they can be used exclusively or in tandem to earn you passive income depending on what value proposition you intend to offer.
You see, I hate when I talk to people and they give me the excuse that they can’t make passive income because they have no money. Let me tell you, when I built my first few passive income streams, I had very little money to work with. For example, I started my first YouTube channel with less than $100 which I used to buy animation software to make my videos with. The rest of my success came from putting in endless hours of work which means that I primarily relied on the resource of time to make my passive income dreams come true. What I am saying here is that a lack of money is no excuse for not starting your own quest to earn passive income.
Now, the other reason why you need to understand how these resources impact your passive income success is because you can leverage said resources to speed up your path to passive income glory. Let’s face it, money can solve a lot of problems and this is true when it comes to multiplying your income through passive channels. An example of this is buying real estate. If you already have a ton of money set aside, within a few months, you can acquire a property, find a tenant and start to earn passive income through the rent payments you collect. Alternatively, if you have a stash of cash, you could invest that money into dividend producing stocks and start to collect dividend payments every month without ever lifting a figure. In short, having capital is a time hack for making passive income but it certainly isn’t required.
Number 3: Vision
Now, I wish I could say it’s enough to have value to offer and to understand what resources you must possess to start earning passive income but if I did I would be lying. No amount of value in the world or level of resources is going to allow you to realize passive income success without vision. Vision is the third and final component you will need in your passive income journey.
You see, when we compare active to passive income, there are two main differences. The first, is your level of involvement which is a no-brainer. With active income, your effort is always required but with passive income, your level of involvement can vary. The other difference is your income timeframe. Typically, with active income, you are paid right away for your efforts but this is generally not the case with passive income. As I’ve mentioned, my first attempt at making passive income on YouTube took two years before my efforts bore fruit which meant that I spent a lot of time working for future rewards.
How did I manage to stay so committed to this cause without seeing any returns for my time? Simple, I had vision. I could envision my future self collecting paychecks from YouTube every month and I knew that that was the life I wanted for myself. So, when all my friends were going out partying or traveling, I was at home grinding away trying to make the best content I possibly could. Now, just because most of my means of making passive income comes from content creation doesn’t mean this same principle doesn’t apply to most other methods of earning while you sleep.
Another great example of having vision is dividend investing. Nearly all successful dividend investors start from scratch to build their portfolios and they invest regularly with the hopes of one day being able to live off the income it produces. They understand that sacrifices in the short-term will yield much greater rewards in the future and are willing to give up spending that money to invest it instead.
I simply can’t stress it enough how important it is to see the end goal in your mind before you step into it in real life. I would go as far to say that most people who earn passive income today would have never gotten to where they are without vision, especially when going about it in non-traditional ways like I have. As Dave Ramsey says, “Live like no one else so you can live like no one else” and if you are willing to put in the work now, I promise you will have people looking at you in envy when you’re cashing huge paychecks while you sleep.
And this leads us to the final point I want to make which revolves around the importance of making passive income that most people overlook. Sure, it’s cool to make money when you’re doing anything but working and with an understanding of the three components I just shared you should be able to do just that. But, the other factor that you will come to appreciate once you start to earn passive income is being able to supplement your income without becoming time poor.
One thing I’ve come to realize as I get older is that my time is becoming more and more scarce. Between trying to manage my job, my health and my relationships, there are few free hours left in any given week. However, your creditors and the stores you shop at don’t care how busy you are, they will still continue to raise their rates and prices to suit their needs. This is why passive income is essential because without it, your life will become one long work shift and quite frankly work shouldn’t be the center of which your life revolves around.
Therefore, given that you now know that generating passive income takes that, I implore you to start now. Start laying the foundation of your future passive income life one blog post, one YouTube video or one investment contribution at a time because trust me, your future self will thank you!