“Business opportunities are like buses, there’s always another one coming.” – Richard Branson
I’ve been reading a lot of books and blog posts lately on a variety of personal finance topics. I’m on a bit of a mission to learn more about which topics pique people’s interest the most, which generate the most conversation and which questions people are looking for answers to so that I can gear my future blog posts to those areas. One of the topics I’ve been reading about this week is passive income. It’s a topic that often crops up when I am talking to mentors but rarely when I talk to financial advisors and so I thought it would be worth exploring.
Passive income is defined as “income received on a regular basis, with little effort required to maintain it.” The important word to note in that definition is “maintain” – it can take quite a lot of time and effort to set up and build an income stream to the point where it becomes truly passive. Most of the people I know who have been successful in setting up passive income streams have more than one; as in many aspects of personal finance, it seems to make sense to diversify. There are plenty of passive income opportunities to choose from; here are three of the most popular:
Dividends and interest can both be great sources of passive income. Dividend paying stocks provide regular dividend income and often increase in value over time. Interest, earned from a savings account or bonds for example, can also provide a regular stream of income. It doesn’t take a huge amount of effort to set up this type of passive income stream but it often takes a significant amount of capital to generate a reasonable amount of income and, as with any investment decision, it’s worth doing your research and taking the time to monitor your portfolio.
I know a number of people who generate monthly income from tenants. Some people have converted their basement or a floor of their home into an apartment that they rent out while others have bought additional houses/apartments and found tenants to rent them. While the idea of someone else’s money paying off your mortgage and leaving you with the equity in the home is an appealing one to many, being a landlord is not for everyone. Bad tenants, maintenance costs or lengthy vacancies can create expenses that disrupt your rental income stream and it can take a lot of time and effort to screen potential tenants and take care of your rental property. From talking to a number of landlords, I’m not sure that rental properties ever truly fit the definition of “passive” income sources but over time and with good planning they can be a great source of income and equity.
We’ve all heard the stories of internet millionaires; the people who made millions from developing a unique piece of software, a great website or a popular application. For those with technical wizardry and an innovative spirit there are definitely opportunities to make millions but you don’t have to be a computer whiz in order to generate passive income online. Blogging, building static websites and podcasting are all popular ways of creating income streams and there are plenty of people who are profiting from sharing information and opinions with others online. It can take a lot of time and effort to create content and build an audience but if you can get a steady stream of traffic flowing, the rewards can be more than worth the “sweat equity” you invested.
There are many different ways to create passive income streams and the vast majority of them take time and effort to build. Finding something that you’re passionate about and committed to is important because there’s a good chance you’ll be tempted to quit more than once as you’re getting started. Taking the time to do your research and seek out people who have already built what you’re aspiring to create is always worthwhile. The stories of huge success can be exciting but the stories of steady work leading to a good reward are more likely to lead you in the right direction. Are passive income streams part of your retirement income plan? I’d love to hear your stories and experiences.