The term passive income originally referred to long-term arrangements involving income from assets such as rental property — you made an investment in something that needed little owner intervention, and that earned an income month after month. The ability to create such a passive income stream has always been the holy grail of those hoping for early retirement.
Of late, newspapers and magazines have delighted in featuring feel-good stories about people who have turned obscure interests of theirs into well-trafficked niche-interest websites. The pay-per-click advertising income that such websites generate allow their creators to kick back and retire early.
These stories tend to be big hits. Most people can’t stop marvelling at how you can simply take a more or less pedestrian idea, work on it for a while, and have it take off, with only some intervention on their part. It’s a magical thought. You need to simply put in some labour, create a winning idea, and reap the benefits forever.
Understandably, it does take skill to put most kinds of capital-free passive income ideas to work.
How would you go about launching a passive income project?
While people do tend to view passive income as easy money, it only turns that way once the idea takes off. Until then, it can take hard work and creativity to get things started. Writing a book, a song or starting an online service that practically runs itself are all great examples of ideas that generate passive income. It’s well worth anyone’s while to work on an idea, perhaps setting aside an hour a day for it.
One of the first things to do is to read up on making passive income schemes work. Finding information is an excellent way to avoid the fate of most such plans: people tend to falter early on, making mistakes both subtle and serious, and believing in some of the mythology that surrounds such plans. It can be helpful to go over the most common myths and beliefs that lead such plans astray.
Myth: it’s a good idea to aim small
When passive income retirement plans fail, most often, it’s because they aim too small. They are either too dependent on the talent of a single individual, or on a single plan. If you are hopeful of a passive income, for instance, you may start a website, get it off the ground, and put a couple of trusted managers behind the wheel. Should they lose interest in the business, you’ll be out of a passive income.
It takes multiple sources of income of reasonable size and diversification for a guarantee of lasting income.
Myth: you don’t need to care about your ideas
It never works to see passive income plans as simple moneymaking schemes. Whatever source of passive income you finally decide on, you need to truly invest yourself in it. Most such ideas are businesses in some form, and require planning, bootstrapping, investing, marketing and maintenance.
According to TaylorsEstateAgents.co.uk, some ideas tend to be easier to get off the ground than others. Basic success in real estate investing, for instance, requires only a certain amount of commitment to finding money to make it all happen, and finding a property management firm to take over afterwards.
In most cases, though, simply aiming for a “money-making scheme” doesn’t cut it. Passive income plans involving the creation of assets such as websites requires committed work.
You don’t need new skills
Investors need to learn about the markets. If you plan to run a website for your money-making idea, you need to learn search engine optimization, website programming and online marketing to make sure that your site has a reasonable chance. With real estate, you need to learn how to look for signs of market changes, and to predict the direction the market will take in the future. Whatever form of passive income investment you may have in mind, it’s important to learn the skills that are central to pulling it off.
It’s okay to assume a business can yield
Whether your idea is to crowdfund a new gadget, invest in the stock market or put money in non-performing real estate notes, it’s important to understand that it is the rare idea that goes through with no hiccups. Most business ideas fall far short of what is hoped of them. It’s important to be realistic, and to invest with a backup plan in place.
Abigail Frost works in financial planning and understands the importance of making your money work hard. She enjoys sharing her insights with an online audience and is a regular writer for a number of relevant websites.