How to make passive income
Is it possible to make passive income and live with it?
Certainly yes, if you know how!
As I explained to you earlier in this guide, there are two key principles for becoming Financially Free.
In this article I will introduce you to 7 different ways to make passive income, putting those two principles into practice.
Before starting, however, I want you to understand one thing perfectly:
IT IS NOT EASY NOR FAST TO BE ABLE TO LIVE WITH PASSIVE INCOME!
If you are looking for a quick and miraculous method that allows you to quit your job and spend your life on a sunny beach with an iced drink in hand, this article is not for you!
If, on the other hand, you are aware that, to earn, be successful and create automatic income, it takes commitment, work and time, you are in the right place and you will surely find some very interesting ideas.
The 3 steps necessary to make a passive income
First of all you need to know that each of the 7 different types of passive income that I will show you can be divided into three phases (and you absolutely cannot skip one of them):
1) preparation: in any way you decide to make money you need to inform yourself, study, practice so that you can understand its potential and weaknesses; if you do not have the right skills you must, first of all, acquire them; all this is of fundamental importance to avoid wasting time and money;
2) action: then you have to put into practice everything you have learned: you have to take action!
3) control: it is the phase in which passive income begins to be generated; however, know that no income is 100% totally passive, your monitoring is always required.
Depending on the way you will create your passive income, the work and time needed will be different; however, it is usually the first phase that is more tiring and long, while the control phase is the one that requires less time and energy.
Also know that you need to have start-up capital, which can range from a few hundred dollars to tens of thousands (or more).
The 7 types of passive income most used by successful people
These are the ways most used and known by successful people.
You have probably already heard of some of them, while others may be new.
1) Investments with financial assets
The Consolidated Law on Finance in Article 1, paragraph 2, lists 10 different types of financial instruments, they are:
- Shares and other securities representing risk capital negotiable on the capital market;
- Bonds, government securities and other debt securities negotiable on the capital market;
- Units in mutual investment funds;
- Spot and forward exchange contracts on interest rates (swaps), currencies, commodities and equity indices. (equity swaps);
- Any other security normally negotiated that allows the acquisition of the instruments indicated above;
- Futures contracts on financial instruments, interest rates, currencies, commodities and related indices;
- Securities normally traded on the financial market;
- Forward contracts linked to financial instruments, interest rates, currencies, commodities and related indices;
- Option contracts to buy or sell the instruments indicated in the previous letters and their indices, as well as options contracts on currencies, interest rates, commodities and related indices;
- The combinations of contracts or securities listed above.
A financial product is a “container” of financial instruments; for example, mutual funds which, in fact, contain shares, bonds or other instruments.
Particular attention must be given to ETFs, a particular type of funds, which has revolutionized the way of investing of small savers for which I refer you this guide.
Many of these financial instruments and products (shares, bonds, mutual funds, ETFs) give the opportunity to receive income (annual dividends, coupons, etc.) as well as being able to be simply bought and sold.
With the right strategy, you can create a portfolio that contains the right financial tools and products to create passive income.
The initial capital can be a few hundred euros to be set aside monthly; in this case, the best strategy is the PAC (Capital Accumulation Plan).
2) Real estate investments
Unlike the previous method, in this case, we are talking about becoming a real entrepreneur.
The time to devote will be a lot, especially at the beginning, both to learn the necessary knowledge and to carry out the investment operations themselves.
You get an income from real estate when you receive, usually monthly, a sum of money for the lease (lease) of a property. This property can be for private (home) or commercial use (an activity).
The amount of capital to be invested is determined by the method of acquisition of the property and there are several in addition to the normal sale (usually through a real estate agency) where the market price of the property is paid.
Some examples of the different ways to acquire property are: full and final settlement and real estate auctions.
Recently, a new way of obtaining income from real estate without being the owner has taken hold: subletting.
In a nutshell, it involves renting a property and then renting it in turn, earning the difference between the rent you collect and what you pay.
In addition to needing a different amount of capital to invest, the different acquisition methods require, for each, a lot of study to become expert enough in that particular field.
Don’t throw yourself into this world without the proper knowledge!
Furthermore, once you have acquired the right skills to work with real estate, you will have to spend time and energy to find and buy the right property to rent.
Then you must also find the right tenant (the one to rent to) avoiding renting your property to someone who may not pay the rent, forcing you to spend more money and energy on the eviction.
There are also all the costs deriving from possible damage, restructuring, etc., which can greatly reduce earnings prospects.
It almost seems that real estate rents give more problems than anything else right?
In reality, with the right entrepreneurial mentality, the right skills and the right strategy, it is possible to create passive income by exploiting the real estate market and its various “niches“, even without the large capital that would be needed for a normal sale.
The 3 new “frontiers” of real estate investment:
- the subleases, which I have already mentioned, through which it is possible to rent a property of which you are not the owner; in this way the necessary capital is limited to the rent;
- real estate auctions, which allow you to acquire properties for less than their market value;
- the change of intended use, which consists in purchasing commercial properties, which cost less on average, and converting them into residential properties.
You can also turn to loans (banks or individuals) to raise the capital you need.
In conclusion, with the right preparation and the right precautions, real estate annuities are certainly to be kept in mind if it is your intention to live on passive income.
3) Become a Company Owner
As I explained to you earlier in this other article, it is possible to live on passive income by becoming a Business Owner, founding and managing a company that generates profits automatically.
An important thing, if you want to become a business owner, is that your work, in the company itself, once it has been started, does not have to be necessary!
The business owner, in fact, invests time and resources for the design and start-up of the company but, subsequently, limits himself to monitoring the company activity from the outside without intervening and perceiving the revenues deriving from company profits.
The initial investment depends on the business activity and can range from a few thousand dollars to hundreds of thousands.
You can make use of loans (which will then be repaid with company profits) or even non-repayable contributions that are made available by the various institutions.
It can take years and a lot of money to make a company independent and capable of generating profits without your intervention but, once successful, you can enjoy the fruits of your work.
4) Intellectual works
I wanted to insert this category to group all the passive income that you can create through your wits.
They belong to this category:
- Copyrights: deriving from books, songs, works of art, photographs, etc., which you yourself have written or created;
- Royalties from trademarks and patents: deriving from trademarks you own or inventions that you have patented;
- Income from software creation: from software you create that you can sell or rent.
Obviously, in order to obtain income, you must be an expert in a particular sector or have a natural talent (writing, photography, art, etc.).
In recent years there has been an exponential increase in “new rich” who, thanks to their ingenuity, have generated fortunes.
Often this happens thanks to the creation of simple software or smartphone applications.
The investment required for this type of annuity is very low. It all lies in creating an innovative and successful product that allows you to live on an income.
5) The Web and its opportunities
Thanks to the Internet, earning opportunities were born that were previously unimaginable:
affiliations: there are many affiliate programs offered by companies through their online sites; through simple links or banners it is possible to advertise the products of these companies and collect a commission for each sale;
dropshipping: creation of an online store without the need to have a physical warehouse;
online advertising: similar to affiliations, it consists of inserting advertising on your site or blog through special sites (Adsense is the most famous); you are paid per click (a few cents) or after the sale is complete; or it is possible to sell the advertising spaces directly to the interested companies;
info-products: you can earn by creating an info-product (ebook, video courses, podcast, etc.) to be resold online through your website or blog; or you can buy info-products, with resale rights, created by other people to resell online;
Youtube: the profession of “youtuber” was born a few years ago, earning money by creating and posting videos on the well-known video sharing site; if the video reaches a certain number of views then the site will reward the author with a portion of the profits from advertising displayed before or during the video.
But that’s not all, Amazon also offers many opportunities
In recent years, thanks to Amazon, new businesses have been born, which we can include in this category:
Amazon FBA: which allows you to create an online store without worrying about logistics;
Self-publishing: through Amazon, it has had a huge development; it consists of self-publishing books, ebooks and audio books without going through a conventional publisher.
The initial investment, compared to an offline business, is much lower. It should be noted that “online” is not synonymous with “passive”. So to get automatic (or semi-automatic) income from these ways of earning it takes time and the right strategy to “scale” the business.
6) Network Marketing
Also called Multilevel Marketing consists of a particular marketing strategy through which many companies distribute their products.
These companies offer an interesting business opportunity: to become distributors of their products.
Furthermore, each distributor can make other people join the same opportunity who will become new distributors of which he is the “sponsor”.
He therefore creates a real “sales network” made up of the distributors he has registered and his and their customers.
Each distributor-sponsor earns:
- A commission on what he sold directly;
- A percentage of the turnover of its sales network.
Thanks to Network Marketing it is possible to create large sales networks which, if managed correctly, can generate real semi-automatic revenues.
Initially, the capital to invest is very low: the money is enough to purchase the annual license (necessary to be registered as a distributor of the company) and, possibly, to purchase products to try and have potential customers try.
It should be emphasized that every serious company, which operates legally, never obliges its distributors to purchase their products (self-consumption). This option remains a choice of the distributor according to his strategy for doing this activity.
To be able to live on passive income with Network Marketing you have to work hard on the creation of your network, which must be followed and trained properly.
One of the aspects I love about Network Marketing is that it is an activity that, in some way, introduces you to the business world, bringing the “business risk” that you would have starting a company in a classic way to almost zero.
Precisely for this reason it is one of the methods I use personally.
7) Creation of a Community
What is a community? It is a group of people, a community precisely, which comes together, and gathers, to share the same hobbies, goals, passions, etc.
You can create a community on any topic: investments, entrepreneurship, health and wellness, modeling, etc …
Be careful though! Forming a community is not just about creating and managing a Facebook group. The group is just one of the many tools and it must not be the only one!
In that case, you would be totally dependent on the famous social network and, in case of problems, you could lose the entire job done in one fell swoop.
You will therefore have to use multiple tools to manage and communicate with the members of your community (in addition to those provided by Facebook you can use blogs, mailing lists, other social networks, organize live and online events, etc.).
But how can you make money with your community?
You already have many ideas in this article; for example through affiliations and creation of info-products dedicated to the theme of your community but, the important thing is to give value to your members and fans.
Create content for your community that is interesting and perceived as useful and valuable, and most importantly, that is free.
Only after you have achieved a good following and have created a “hard core” of loyal members will you also be able to insert paid content, products and services.