Make It Once, Sell it Until the End of Time
The beauty of passive income is that you can create or invest in something once and earn income from it for years. If you make a bead necklace and sell it on eBay for $30, that's great. You have $30 more than you had before. But to make another $30 you now have to make another necklace. If you make a web page that makes $30 in one month, you might still make another $30 the next month without having to do any extra work. In fact, if you are lucky, you might just make $30 a month or more for years into the future with that one page.One of the reasons many people aren't more financially secure is that they do not understand the concept of passive income generation. Years ago I made a small web site in a couple of days that started making $3 a day after it had been online about a month. The topic was evergreen content that would require little updating over the years. In my mind I was going to make $3 a day, 365 days a year for 5 years (or more) for two days work. That comes out to a total of $5,475 over 5 years, or $342 an hour for my 16 hours of work.
I was really excited at the concept and told one of my friends all about it. She looked at me like I was a 5 year old who had just found a quarter on the side walk. She kept asking me why I was so excited over $3. For years afterwards, she would send me job ads for intern positions and minimum wage jobs. She thought I was desperately poor because I was so excited over making $3. In her mind she was trying to be a good friend and help me out by getting me a "real job". I tried to explain to her the concept of passive income generation, but it never really clicked. She never got past my excitement over making $3 for one day. So for years my friend would send me the low paying job ads and for years I would politely express my thanks and let it go at that.
Some days my little site makes more than $3 a day and some days less, but since it has been online it has consistently averaged at least a thousand dollars a year for little extra work on my part each year except to pay the small hosting fee.
Ways to make passive or semi passive income include:
Royalties on books, DVDs, online videos, audio books, etc.
With the advent of the Internet age and easy self publishing options, almost anyone can create their own book or DVD these days, My idol with this model is J.K. Rowling. She wrote each Harry Potter book once and has now earned over a billion dollars in royalties and licensing fees with no end in sight.
Income from revenue sharing sites for blog posts, forum posts, and article writing
Since the revenue is shared with the site owners, the income per word on revenue sharing sites is generally much lower than most good writers could do with their own blogs or web sites. The advantage to revenue sharing deals is that it is easier to get traffic since these large sites are already ranked in the search engines. Though it may be an easy way to make some extra income, in order to make a living at this model you often need to have thousands of articles online, because the pay per article is often very low. Many freelancers who use this model claim to make average anywhere from 30 cents to $2 per article per month.
Rent from real estate
In terms of tax lingo, real estate rent may be a passive income activity, but in terms of hours of work needed to generate $1 of income, personally I think real estate is a lot of work. Initially looking at properties, finding one to buy, and sorting out the financing and acquiring the property is quite time consuming. Later on there is finding and keeping good tenants and keeping up the property. If you have an older rental that needs a lot of maintenance work, have tenants that don't keep up the property or pay the rent on time, dealing with these issues can take up a lot of your time.
Licensing inventions
This is a good option for creative types, but not everyone can think up ideas worth licensing. If you like this option, watch the show Shark Tank on TV. Budding inventors present their ideas to a panel of money sharks who either invest in their businesses or send them packing. Hint: most people get sent packing.
Interest income from financial instruments like savings accounts, certificates of deposits and Treasury bills and Treasury Inflation Protected Securities (TIPS)
This option is the least work but you have to have the money to invest upfront in order to make money. Right now with interest rates so low it you need a very high principal to make a living off interest income.
Ad revenue from web sites and blogs
This is one of the easiest ways to get started with literally zero upfront costs. Anyone with basic computer skills can sign up for a free blogspot blog and have a blog up and running in an hour or so with Adsense ads on it. The downside is that you have millions of competitors in most popular topics. Plus it may take time to build up a readership and achieve decent search engine rankings. I like to write about personal finance so I keep up this blog and companion web site up more as a hobby, but my web sites that make the most money are generally the ones on much less competitive topics.
Dividend income from stocks
This was a safer strategy years ago. With the seesaw fortunes of major banks and other industries these past few years, dividend income isn't something to be counted on for stability as much as it has in the past. Still dividend income makes stock ownership less volatile than just counting on capital appreciation.
Capital gains appreciation from assets like stocks, real estate, gold, collectibles
Over the really long haul, inflation often helps assets like these rise in price, but it isn't something you can always count on. During recessions and after market "bubbles", assets like these can take a huge tumble.
Cash Back Credit Cards
If you pay your credit bills off each month, consider getting a cash back charge card. Some pay as high as 2% right now. I pay for groceries and utilities with my cash back cards simply for the rewards. You have to buy food and pay your phone bill anyway so why not make a little extra money off each transaction? After the initial work of finding a high paying rewards card, you can earn money, airline miles or gift certificates with little extra effort throughout the year.
Buying Groceries on Sale
This requires a non-passive effort, but most of us have to buy groceries anyway so it is not a lot of extra work for the amount of money saved. Stockpile those nonperishable or freezable groceries when they are on sale at 2 for 1 prices and make 100% return on your money. Since you are buying groceries with after tax money, the $10 you save on loss leader groceries after tax might be equal to earning an extra $20 in income after state, federal, local, social security and medicare taxes are deducted from your pay.
Maximum Rewards for Least Effort
Passive income is helpful for making the most income with the least amount of effort. That $3 a day web site today might just turn into thousands of dollars over the years without any extra time invested in it. When groceries are on sale at half price, it is almost as easy to buy 6 tubes of toothpaste as it is to buy 2. Each time you make an investment, spend money or envision a money making project, think about how much work it will take over the long term to bring in each $1 of future income.
