How to generate passive income
Is it possible to live without working? How is it possible to earn more money? The search for an answer to these questions is what leads many people to enter the world of passive income and investing.
Most people only know one way to earn money and generate income: their job. And working has very little to do with passive income.
As a salaried employee you rent your time to a company that pays you for it, the more you work, the more you get paid, and if you don't work, you are left with no income. It's as simple as that. This is what is known as an active system of generating income.
This is the most widespread model. There is nothing wrong with it and it works very well for almost everyone. It only has one problem, the only way to get extra income is by working more (in your job or with collaborations) or getting a raise.
That's why, in front of active work there is passive income or passive work.
What is passive income
It is a way of earning extra income that differs from the usual ones in that it does not require your constant attention. In fact, the book title "The 4-Hour Workweek" by Tim Ferriss defines it quite well. A passive income is characterized because it works automatically and does not need your time to generate income for you.
To make it easier for you to understand, if you do freelance writing in addition to your full-time job, you have a second way of earning money. Unfortunately, this is not the same as earning money passively.
As a freelancer you need time to do each piece, so it's really like a job.
However, if instead of writing them yourself, you commission someone else to write them and you only have to manage it, it will be a passive income. It will require your time, but not as much. This is one way to build passive income.
The more automatic the process is, the more passive that extra income will be. Of course, don't make the mistake of confusing extra income with not working. All extra income needs some initial work. It's like that house you buy and now it gives you 1,000 euros every month in rent. You had to make a great effort (economic in this case) to buy it. Don't think that it's all just a matter of getting there and kissing the saint. There is a lot of effort behind it.
If you want to generate passive income you will have to work until you have the system up and running. In addition, then you will have to spend time monitoring it.
Why you should generate passive income
But the most important thing is that passive income is the most direct path to Financial Freedom. When you only depend on your salary and you don't know how to make money by other means, you are moving forward without the turbo and it will cost you more to reach your vital goals.
There are three advantages to generating passive income:
You have a Plan B for your finances.
When you have a passive income system you are diversifying your source of income. To make it easier for you to understand, imagine you are a freelancer. Would you have only one client or would you look for several in case one of them fails you? The systems to generate extra income are precisely that, your additional clients.
In case you run out of work you can turn to them, they are your safety net and your plan B, both professionally and financially. What's more, with luck they may even become your Plan A.
You save more
If you earn more and are able to avoid the trap of growing expenses, you'll save more. It's as easy as that. Imagine adding another 200 euros to the 200 euros you already save every month. Instead of walking towards financial freedom, you will run.
You can stop working
This is a myth and at the same time a reality. You can live on passive income alone, because it allows you to build so much financial freedom that you can spend years doing nothing and still have money. The problem is that there are very few examples of recurring passive income that do not require your attention afterwards.
Think about how to make money online. Positioning a page takes time and once achieved you can spend a few months doing practically nothing, but as the rules of the web change and competition increases, there will come a time when you have to invest time in it again. The difference is with respect to your job, is that you choose how to generate this passive income, in what sectors. Bet on something you like and you will not be working, but devoting time to one of your hobbies.
5 Ways to generate passive income
There are many ways to generate passive income. Some plans to create passive income require more dedication and others require more initial capital as an investment. The best example is the difference between buying a house to rent versus generating an online income.
Here are some passive income ideas you can put in place to earn more each month and achieve financial freedom:
- Create digital content
- Renting out your assets
- Create an online retail business
- Earn income from your savings
- Copyright and royalties
1. Create digital content
If you are wondering how to generate passive income with automated systems to earn money, content can be one of the answers. In addition, the advantage is that there are different models to achieve it, from ebooks to online courses through video courses or the famous infoproducts.
All you have to do is choose a topic you are an expert in, either professionally or as a hobby, and stop and think about what you can contribute to other people. Put all your knowledge together in your favorite format and sell it on Amazon if it is a book, with your own blog or on platforms such as Tutellus, Aprendum or Udemy if it is a course.
You can even combine several platforms to increase the passive income you generate with the same product.
In addition, you can go further and sell third-party products. If you have your own blog, you can sell third-party content that will pay you for each customer you take to their page. This is called "lead generation". We have interviewed some of them:
Mapi, Ahorradoras.com: "Savings alone are not much use if what you want to achieve is financial freedom."
Franck Scipion, Lifestylealcuadrado.com: "You can always start a great digital business without leaving your job. The first priority is to pay the bills".
Isa and Juanmi, Masymejor.com: "Creating assets to generate income is a medium-term investment that not everyone is willing to make".
Tomás Pulido, author of Ahorra y sé Feliz: "We have too many internalized ideas that automatically make us poorer".
José Carlos Álvarez, Cuandovaleuneuro.com: "The goal is independence, that you don't always depend on a job..."
2. Renting your assets
The Internet has spurred the collaborative economy. If there is something you have at home and you don't use it, you can rent it out! What's more, you can even rent out your home if you want through Airbnb or HomeAway and get a return on it on weekends or when you go on vacation. This is an example of how to turn your home into passive income.
You won't be the first one who goes to the house in the Sierra every weekend and rents out his apartment in the city center or pays for his second home with the money he receives from the rent.
Another alternative is to rent your car with websites like Amovens or turn it into an ad with Marketmoving or Serbercar.
3. Create an online sales business
With your blog you can sell third party content, as you have already seen. The easiest way is to create a page about your hobby and sell "leads" to courses and content from other people who have created those ebooks, for example.
You can also go a step further and sell physical products from third parties. Basically it would be like turning your website into a vending machine. When the time comes, you can choose between buying and selling the product, with all that this implies, or finding a supplier who will give you the product so that you only have to sell it in exchange for a commission.
An alternative
4. Get income from your savings
Yes, investing is passive income. In fact, it is the main passive income for most people. Even the great creators of massive passive income complement their activity with investment.
And is that thanks to compound interest, the savings you invest will not stop generating more money without you having to do anything. If you are wondering how to create a passive system without a lot of work, investment is the key.
The key question here is where do I invest my money to get a high return. If you want to generate income from your savings, we recommend this free service.
5. Copyright and royalties
Copyright and royalties will also allow you to get automatic income every time someone listens to your song or uses your invention.
Music, scripts, photography... all of these will allow you to collect royalties. Here you can learn more about how to generate a royalty.
