Passive income is a new concept for many people. Some believe that it’s just a pipe dream, while others have the mindset that passive income is evil in nature because you do not have to work for your income later in life. I often hear the phrase, “I believe in making an honest dollar”, which basically translates into, “I think you’re scheming to get rich without working for it.”
Do you want to know the truth? Passive income is actually very difficult to create. It takes a well-thought-out business plan, it takes hard work initially with no guarantee of success, and there’s often scoffing along the way from all the people that think you’re crazy for trying something so unheard of.
The Typical Job
The majority of people make a living by working the typical 8am-5pm job (I don’t think the 9-5 job exists anymore). They have a set wage and can only increase their earnings by either getting a pay-raise or a promotion. Here’s the problem though. At some point, your current position just won’t pay out any more money. After all, each job is only worth so much, no matter how good at it you are. As for the promotion, yes, you might increase your earnings, but you are also taking on more responsibilities, which means that you’ll be spending more time at the office rather than with those that you love.
The typical job has a time for money exchange. If you want more money, you’ll have to work longer hours. If you’d like more time away from the office, you’ll naturally make less money. It’s just how it is in the typical job.
Making Millions with a Job
No, I didn’t mess up on the title. It is possible to make millions within the typical job, but it often takes 40+ years of consistent saving and investing. If you like this method, then you can stick with your job, but I’d like the possibility of making millions much sooner with the passive income approach.
Making Millions with Passive Income
With a job, income is linear. Every week, the job pays exactly the same amount as it did the week before. If you put a certain percent of your earnings into a savings account, then that fund will grow linearly as well (well, it will grow a little bit, but at what rate, 0.25%??)!
With passive income, earnings are exponential. Let me try to explain this with a Warren Buffett example. When he was a young man, he bought a pin-ball machine and put it in the barbershop for the waiting customers to play. Each week, he earned a moderate amount of money (when adding up all of the change) from the machine. If he spent his money on gumballs and slingshots, his income would have been relatively linear as well, but he used all that change to buy another pin-ball machine, and then another, and then another. Soon, his income was 15x the amount of what it was initially. He then used that money to buy a plot of land and rented it to a local farmer for a hefty amount each month.
The pin-ball machine money was passive. Little Warren made his initial investment on the machine, and then it kept bringing in money for many years after that. Since he did not need to work for that pin-ball income, he could easily take the time to invest in many others and multiply his income tremendously. The time-for-money exchange was non-existent, and it led to unlimited earnings! This is how millions of dollars are made in passive income. Find a method for making your money, take yourself out of the equation so that it can earn an income without you, and then duplicate the process again and again and again. Follow this plan, and you’ll be a millionaire in no-time.
Are you ready to make some passive income? Do you have a plan in place?
This post was written by Derek.
I have no plan in place yet but the tools are working. Especially after joining the Yakezie Challenge. I used to own a telephone route. At one point I owned 19. Then cell phones put me out of business.
I knew a guy that had pay phones as well! Rather than follow the trend of cell-phones, he fought against it and bought more pay-phones. Soon, he had nothing and was collecting pop cans to survive. It’s a sad story, but it can happen to anyone. He’s now back on top and making millions again – I bet you can do it too!
That’s the advantage of multiple income streams. When your income from one source dries up because of shifting markets, you can fall back on the other sources.
I had an enterprising friend in college who paid for her school tuition with a string of small vending machines. She went from three initially to an eventual couple dozen or so. I lost touch with her, but I bet she’s probably financially independent today.
Awesome story! Vending machines can be a tough business, but it CAN work! Another great example of passive income.
I’m finalizing plans to start another company (want it to be separate from the accounting business) to operate some websites. I’ve already researched and have ideas for 2; just need to get the administrative stuff out of the way before moving forward. They aren’t blogs, but just need a little work to be put into them before they can be considered passive.
Passive sites can be a great resource! Good luck with it, and if it works, be sure to let all of us know your secrets! 😉
I have found that “passive income” is not as easy as ‘flexible earnings from building your own business’ is. The internet offers all kinds of ways to build a flexible income, which can then be transferred over into truly passive income (rental property, dividend stocks etc).
Yep, you are right MUM! Sometimes it takes a ton of work to make your own business work, but it can always be transformed into passive income. 🙂
I am definitely a fan of passive income as well. I like how you didn’t exclude keeping a job while developing passive income streams. All too often, that is missed. I also liked the pin-ball machine example! Good stuff.
I currently work a full job and am developing income on the side. Soon, it will be more and more passive, and I can repeat the process! Then, if I choose, I can ditch the day job.
Love this post; I’m currently identifying options for passive income that would fit with my current job/lifestyle. I think being flexible and motivated are two very important pieces of the equation. Thanks for providing the thought stimulation; I’m tempted to look into vending machine options as well now…haha!
Lol. I don’t know if the vending machine is very big business anymore, but you never know! All business ideas are worth looking into. I’m glad I could start stimulating your thoughts! 🙂
I love these passive income stories and ideas – I’ve heard vending machines can be difficult, but great if you do them right!
Yep. I have heard the horror stories of vandalism and stolen items, but if you get the right areas, it can really be a great source of passive income!
I’ve been working on a couple of different passive income avenues, but they do take a lot of up front work and some may never pay off. Passive income strategies are not for the risk-adverse. 😉
They sure do take a lot of up-front work! And you’re right, they could be a complete flop! But, if they are effective, then you could get paid for life for something that took you only 6 months to put together. That is where it get beautiful. 🙂
You’re stories really bring the message alive. Nice article Derek. I just can’t get enough passive income.
Glad to hear it Hunter! I have a passion for passive income as well. I can’t stop writing about it! 🙂
I love hearing stories of passive income. My short term goal: create blogs and internet products to generate passive income. Long, long term may include reale state or buying businesses.
I like the long-term idea of real estate as well. My wife and I plan on using our extra income to pay off our house uber-fast, and then moving onto purchasing our first rental property. I can’t wait!
Wish I had this advice 30 years ago!
If you apply it today, you could still benefit tremendously. Don’t worry about what didn’t happen in the past. Think about the amazing life you’re going to have in the future because of your actions from today! 🙂
That’s a great passive income story. Passive income is the way to go. Thanks Derek.
Passive income sure is the way to go! So many people get home from work and plunk themselves in front of the TV for hours, and then go to bed. Imagine what they could accomplish if they turn off that TV and build some passive income!
Passive income is definitely nice to have. I am currently renting out my townhouse and I guess this can be considered passive income. However, it does require some effort when they contact me with issues.
I consider your townhouse to be passive income. Sure, you’ll have to stop by once in a while and fix stuff, but how often are you really there? 2 hours a month? I’d say the return is well worth the time put in.
What are the difficulties everyone talks about with vending machines? Renting is a great idea. If you buy a duplex or 4-plex it can be fairly easy to manage. It could be a good time to buy at today’s prices.
Vandalism. Sometimes people really need some candy, so they decide to tip over your machine, bash the side in and take all of the treats. I don’t think it happens very often, but it’s a definite possibility. I suppose you could avoid this by regulating where your machines are placed, and you also could put up a camera.
I agree with the real estate – I love this form of passive income and will be involved with it very soon!
It is a great story. The other day I was thinking that maybe some day in the future I will be ready to research passive income possibilities out there. For some unknown reason I think that passive income can be very unreliable. I like stability more than anything. 🙂
Passive income can sometimes be unreliable, but other times, it can be very reliable. If we’re talking about a business that’s run on a system, this passive income can be incredibly reliable and consistent. If, however, your passive income is a niche site that depends on Google alone to make an income, then this is quite unstable. I’m sure you can recognize the difference, and I’m with you, I’d want stable income as well!
Warren Buffett is a great example of an awesome investor and passive income builder. It’s amazing to me how he turned a paper route into pinball machine cash flow and a portfolio of real estate and public securities. And just think, with $40 billion in assets, you only have to be like 1/40,000th as successful as him to make a million bucks. 😉
Haha! You’re right! It really isn’t that difficult to make a million bucks anymore – we just have to be consistent and disciplined, and we could almost stumble upon it with our eyes closed! I think I’m going to be 1/4,000th as successful as Warren. $10 mil sounds pretty comfortable to me. 🙂
I love passive income- and I think it’s the way to go.
Rarely do people make big money on their income from work. It’s the side hustles/ dividend income/ rental income etc. that makes it.
I get excited when I hear about side hustles earning more than the day-job! It opens up so many options in your life. You could pay off the house in record time, start more side businesses, turn your side-business into your full-time business, or you could begin investing heavily in your future and retire incredibly early! It’s a riot either way. 🙂
I love your enthusiasm for building passive streams of income! It is definitely contagious and motivating! I am excited about learning more about becoming successful at developing my own passive income streams. Love pinball machines…. maybe they are the new “retro” craze and will come back into style 🙂
There’s nothing that beats passive income, and it’s so fun to create too! I love how everyone loved the pinball machine idea…. if only we lived in the 1950s,,, 😉
Didn’t know about the Little Warren story. Guess he did pretty well for himself moving away from pinball machines. 🙂 Nice point about our day jobs being linear and capped unless we take on more. Better get on the passive income horse today. Great post Derek!
I just can’t stand how some people are so focused on climbing the corporate ladder (because that’s what everyone strives for). Then, once they get there, they are putting in long hours and never see their family….. Yep, they should have invested a little more time into some passive income streams.
Passive income to me is to buy more high yield shares. I will continue to do so as the market is still favorable to buy in.
That is one way to do it. Sure, there is some risk, but the payoff could be great once the economy turns around!
Your article of making money through passive income is great. I’m intending to do that as well.
Starting an online business is not that hard and could turn good profits if you can bring traffic. The formation costs is lower than opening a restaurant or store. I also work full time but I have realised that a job alone will not be enough for these days, especially living in an expensive city.
You are totally right. We all need to generate multiple sources of income to secure our financial futures. Putting all of our eggs in one basket these days is really risky.
the title makes it sound like a “scheme” — but you’re right, you can make money passively (in your sleep!) if you invest correctly. You can also lose money in your sleep, too.
I definitely didn’t mean for it to sound like a scheme, but it’s the truth! Start with one income stream and just keep repeating the process. If someone tells you, “If you can make a thousand, then you can make a million.” they are talking about passive income. 🙂
Hi. I was wondering if you had tips or starter ideas to obtain a passive income.
Hi Steve. Yes, I have tons! Contact me at derek [at] lifeandmyfinances[dot]com. I’m looking forward to your email.
I’ve only been able to generate about $85,000-$90,000 in annual passive income after 13 years. Man, it would be awesome to get to a million bucks!
But, I’ve built a business that is generating a good amount. Online work isn’t passive, but it’s fun!
Wow that is amazing Sam. That is a large chunk of change. I can only hope to do as well as you.
$85,000 a year is definitely enough to survive on, but it’s nowhere near the amount Derek is talking about in this post.
Hence, you guys have inspired me to keep on working. Bit by bit, I hope to get there.
I’m seeing at least two clients a week in my bankruptcy practice who drank the “passive income” kool-aid, put their retirement funds, and the equity in their homes into rental properties. What they got was a trip to a bankruptcy lawyer. Sounds good on paper, but can only be, at best, a piece of the retirement puzzle.
I would agree. Our foundation for retirement needs to be build on a combination of money making methods and not just passive income. Diversity makes for a stronger base if you ask me.