Passive income vs Active income
Passive income is getting paid even when you are not actively working. Its money that keeps coming in regardless of you doing any work. Building a passive income generating business, however, does require a lot of initial effort so its not for the lazy or anyone who has a get rich quick mentality.
Active income on the other hand, is trading time for money. When you work, you get paid. When you stop working, the income also stops. A regular job is Active income. You can be loyal to a company, working hard and dedicating 40+ hours a week for many years. But once you stop showing up to work or are unable to work for whatever reason, your income also stops, regardless of how much effort you had put in in the past.
Why do most of the population put so much effort into active income?
So why is it that the majority of the population are putting so much effort into making a living via active income as opposed to building a passive income business? My theory is that we’ve all been programmed since a very young age to be good robots. We’re taught in schools to keep our heads down, study hard, get good grades so that we can be employed by a large factory or company. Yes, this was an effective strategy back in the Industrial age where factory workers were required to memorise tasks to be properly executed, but the majority of those jobs have been made redundant through efficiency and cost cutting.
A well known study in 2013 done by Carl Benedikt Frey and Michael Osborne suggests that 47% of jobs in America will be automated within the next 20 years. Subsequent studies found that computerisation will impact 35% of jobs in the UK and 49% of jobs in Japan. The jobs at the highest risk for automation are in transportation & logistics (taxi and delivery drivers), office admin/support, sales and services (retail clerks, cashiers, accountants and telemarketers).
We are already seeing technology advancing at an unbelievable rate. Driver-less cars, drones delivering pizzas & parcels, computer macros already replacing thousands of office jobs. The list goes on and on.
On top of the advancements in technology, productivity gains and cost cutting exercises are also slashing jobs around every corner we turn.
Focus on building a passive income business
There are so many ways to make a living other than trading time for money. If I had just spent a fraction of the time on building a Passive income business as opposed to working for someone else, I would have been able to enjoy more time with my wife, family and friends. This is quality time with family that I cannot get back.
But it’s never too late to start building a passive income generating business so that you can set yourself up for the future and for a comfortable retirement. Regardless of how ‘secure’ or comfortable or how busy you are in your current active income job, I urge everyone to take action now and start building a passive income business on the side. Spend as little or as much time you can spare but do something that works towards your financial independence.
Once you have multiple streams of income, you’ll feel more free and in control of how you want to live your life.
What should you do with all the spare cash?
As you start generating money from your side business, start putting all the profits away towards paying down your mortgage (if you have one) or buying an investment property. Use the extra money wisely to set yourself up for the future rather than tying yourself down further by increasing your standard of living.
Eventually, your passive income will overtake your active income. This is when you will be in the top 5% of the population living financially independent and only working because you choose to, not because you have to.
3 passive income generating ideas
I receive passive income through many different sources such as investing, property rental returns and shares. But these require a lot of capital to begin with to see some decent returns. I will share with you, however, my other 3 businesses which requires minimal investment but provides very generous flows of passive income.
1) Become a network marketer
What is network marketing?
Network Marketing is a means of promoting products or services through word-of-mouth. Companies are realising that businesses are growing and selling more rapidly with the Network Marketing approach. Rather than spending substantial amounts of money on marketing agencies, professionals, billboards, TV and radio ads, the company provides a portion of its profits to the individual distributors who use and recommend their products or services to others.
Is there any money to be made?
Network marketing is one of the fastest growing business models in the world. Its big business with significant impacts to the global economy. In 2013, network marketing recorded almost $180 billion dollars in global sales for the year. In comparison, the movie industry made $88 billion and the music industry made $15 billion in global sales.
The profit portions paid to individual distributors for that year was $71 billion. That’s a pretty sizeable contribution to all the everyday mums and dads running a part-time home business.
Running a network marketing business
Like any other business, you need to treat this like your own business and work at it if you want to succeed. The more you put into it, the more you will get out of it. It is not a get rich quick scheme or a lottery ticket where you can just sit back and hope for the best. Once you’ve built a strong enough business however, you will continue to generate passive income for many years to come without having to put in as much effort.
Similarly, when starting up a network marketing business there will be some form of initial investment, generally consisting of products for you to use and share with others. There will be an on-going monthly investment, again made up of products for personal use or to share. The company and your sponsors (upline) will provide you with on-going training and support to ensure you succeed in the business. The major difference, apart from the significant cash investment, is that there are no overheads, no employees to manage and no products to stock. The company will set you up with an online store which you can send people directly to buy your products or signup for the services you have to offer.
If network marketing is so great, why doesn’t everyone do it?
A common misconception about network marketing and the main reason why people are shying away from this business is that they think they need to be good at sales or be a good presenter. To become successful in network marketing, portraying that you are good at sales and presenting can actually inhibit the growth of your business. Here’s why..
In network marketing, there is a well known saying ‘Don’t do what works but do what duplicates’. For instance, if you’re a super star sales person or presenter, no doubt you will be able to sell large amounts of products or services and also find more business partners to join your team. But the fact is, not everyone is good at sales or are confident in giving a decent presentation. So how will your business grow if the people you’ve on-boarded don’t have these skills to grow their own business? You’ll need to work extra hard to do more sales and recruit more people just to keep up your earnings. This is not passive income, running a business this way just turns into a regular active income job.
Duplication, on the other hand, is how you turn your business in to a real passive income producing asset. With the advancement of technology, the product knowledge and business presentations are all done for you. The company will provide you with all the product/service information, including the business model in the form of a YouTube video or a website link to an online webinar. All you have to do is share this information with your networks. If your contact shows interest and would like more information, connect them with a person who has been in the business longer than you to answer all the questions.
For the average mum or dad who are not natural sales people, this is highly duplicatable as all they have to do is share the product & business presentation with the people in their network and for any questions, send them straight to someone in your business who knows more than you. Being able to duplicate is why anyone, regardless of their age, sex, nationality, educational level, can earn ten’s of thousands of dollars each month by building a large network of customers and distributors. Just keep in mind that you are only the messenger and not the message. Informing people of a great product/service or a business opportunity is essentially all there is to it.
- Ask around. Network marketing is so common these days, you’ll be surprised how many people in your network are already associated with a network marketing company. In more recent years, the conversations are shifting from ‘what is network marketing‘ to ‘which network marketing company have you partnered up with and what products/services do they have to offer’
- Do your homework. There are literally thousands of network marketing companies to choose from, so do your homework and choose wisely as this is your future at stake! Here are some things to consider when deciding on a company to partner up with:
- How long have the company been in operation? Does the company have a proven track record? Businesses tend to fail within their first 5 years of operating. Ensure the company you choose to do business with will last and continue to pay you passive income for many years to come.
- How will the company help you learn and grow personally and financially? Does the company provide training and support? Find out if the company has regular team updates, team training sessions, educational seminars and live events. How will your upline support you to grow your business or will you have to work on your own?
- Are the products or services currently in high demand? Refer to the Direct Sales Association fact sheet: http://www.dsa.org/benefits/research/factsheets
Gone are the days of ignorant people associating network marketing with Pyramid schemes (Pyramid schemes are illegal by the way). There are a growing number of people taking the opportunity and getting involved by running their own business through network marketing. Everyday mums and dads are producing 6 to even 7 figure yearly salaries.
2) Become a host on AirBnB
AirBnB is an online accommodation sharing site which enables virtually anyone to rent out their residence in exchange for money. The listing price per night is at your discretion. AirBnB receive commissions from both the host and guests by simply connecting people looking for short-term accommodation with people looking to rent out their homes.
Earning passive income from renting out your property on AirBnB is a great way to make some extra money while you, and your guests, sleep. Renting out your place as short stay accommodation is more hands-on compared to your long term leasing. However, managing the listing yourself as a host will generate you around 3 times as much rental income compared to long term leasing.
As a host on AirBnB, you have the option to rent out your entire place or just a private room. I have heard of many people who rent out their space on weekends, while they sleep at their partners or parents, to cover the cost of their rent/mortgage and have a bit of extra cash on top. This is a great way to live rent free whilst earning some pocket money but it won’t generate you passive income.
As the popularity of AirBnB grows, so too are new start-up businesses which offer to manage your entire listing for a percentage of your revenue. These businesses can manage all your booking requests, liaise with guests, checking in the guests and organise for cleaners to service the property. Its all done for you at around 15% of your earnings. If you want to be completely hands-off and have this business run fully passive, finding a short stay agent is the way to go. Long term rental agent fees are around 5%, so paying someone 15% for 3 x times your rental returns would be well worth it.
To save myself 15% in fees, my wife and I simply manage all the bookings ourselves via the easy to use AirBnB app on a smart phone. Apart from spending a couple of minutes each time a new guest makes a booking, the remainder of the business is automated. We’ve automated the check-in process by storing a lockbox (secure key storage device found at your nearest hardware store) outside the apartment and sending the guest instructions on how to access the lockbox for self check-in. Cleaners are hired to service the apartment once the guests check-out. You can even choose for the guests to pay a cleaning fee on top of their nightly stay.
- Create your listing in AirBnB by using this link and receive $65 through AirBnB’s ‘Host referral program’. You’ll be guided through step by step on all the details required as a host. Its very simple and straight forward.
- To stand out from the rest, ensure you upload high quality professional looking photos. You want your space to look bright, clean and spacious. I recommend getting a professional photographer or if you have a DSLR, rent for a day a wide view lens similar to the ones used by Real Estate agents. AirBnB also offer free professional photographs, depending if there are freelance photographers in your area.
- Think about what you would expect from a hotel and stock up on toiletries, towels and linen. You can buy hotel supplies in bulk online which works out to be relatively inexpensive.
- Once you are confident and have hosted a few guests, start looking for ways of automating your check-in process, booking administration and cleaning services. As mentioned above, you could easily fully automate all 3 but it’ll cost you around 15% of your earnings, which would still work out better than long-term rental.
3) Create your own website
The intent of this website is not to make money, but to provide value to others by sharing discoveries to a wider audience other than my immediate circle of friends. However, owning a website can turn into a liability if you don’t monetise it. To host a website, there are on-going monthly domain hosting fees and regular site maintenance effort involved.
Monetising a website can make you as little or as large an income as you want it to. Generating passive income from a website can be serious business as there are over a dozen ways to make money from your website. Here are the most common and easiest ways:
- Google Adsense – by display ads on your website, each time a visitor views or clicks on an ad, you will get paid. Depending on the company displaying the ad, Google will pay you between 0.02c to $20 per click. Not bad for giving up a small piece of Real Estate on your website.
- Affiliate marketing – by advertising products or services on your website, you receive a commission for every visitor who purchases a product or service. You don’t need to know the products or be involved in any way, but because the visitor on your website followed a link and purchased a product, you will receive commissions for the referral. Commissions can range from single digits to 50% of the sale. Do a quick google search on ‘Affiliate program’ for any product or service you wish to promote on your website.
- Donations – simply ask for donations on a section of your website via a PayPal link. Upon researching monetising strategies, I was surprised to see how common and successful donations are as an income source.
Traffic, traffic and more traffic!
When it comes to generating income from your website, traffic is key to your success. There are numerous ways to increase traffic to your site, either for free or at a cost. It all depends on how much time, effort and money you are willing to put towards it. Here are just a few:
Online advertising – if you’re selling goods or services, I would recommend investing in Facebook advertising. Facebook derives almost 25% of all social referrals. With over 1.5 billion active monthly users, your target market is huge.
Social media – user social media channels such as Twitter, Facebook, LinkedIn, Instagram, Pinterest etc to promote your content.
Commenting in related forums – google search some popular forums and post comments relating to your niche market. For each comment you post, include your signature at the bottom which specifies your website URL. This will help you increase your own website traffic and build your brand at the same time.
SEO – Search Engine Optimisation is a way of making sure your content is structured in such a way that search engines can easily understand. This in turn will improve your websites rankings, increase awareness in search engines and drive more traffic. There are simple plugins you can use which guide you on changes you need to make in order to optimise your content.
If you do decide on making money from a website, first focus on adding value to others rather than focusing on making money. The more value you add, the more you’ll be rewarded.
- Find something that you are passionate about. What do you enjoy doing in your spare time. Have a think about how you can add value to others with the same interests.
- Purchase a domain name ie. www.<your domain name.com>. Initial costs may be free but the regular monthly costs will be around $15 per month.
- Find a reliable place to Host your domain (website). I use Dreamhost to host my website. They’re not the cheapest out there but they are fast, reliable and have excellent customer Live Chat support. As I was new to web hosting and design, I had broken my website about a dozen times trying to learn how to create a website from scratch. Thankfully the live support were always available to help me every step of the way.
- There’s no need to pay anyone to build your website, simply install WordPress on your hosted domain so that you can design and build the site yourself. WordPress have thousands of webpage templates to choose from and loads of plugins to further customise your site. Have a look on YouTube for WordPress tutorials, its fairly easy to use once you’re familiar with navigating around WordPress.