The Dream of Passive Income - What Are The Options?
There is this overall dream that probably everybody has: earning money while they sleep. By now everybody who is reading this will probably know that I am talking about the holy grail of investing: passive income! In this article I want to talk about what I understand under passive income and present a few ways that it is apparently possible to earn passive income. I will also try and rate these ways and will let you know what my opinion about this is.
How I Define Passive Income
Like I mentioned in the introduction, a lot of people think of passive income as money which flows into their wallets without doing anything aka sleeping. I have a slightly different approach to this. My definition can be divided into two different ways. Both ways have a similar outcome which is generating positive cashflow into your own pocket.
Now the first way to generate this income is to invest some of your time. There is this fallacy around that by creating content on YouTube or writing blogs you can create easily passive income. I see it more like investing your time now to get eventually paid later. Here you are trading your time which you could use to watch TV or spend time with friends but instead you are creating content for other people. This content can get paid in the future; hence you are trading your time versus a potential future reward. And yes, this future reward can be earned while sleeping but only because you already put the work in before. Some of these examples I will present further down this article. The most important thing to keep in mind while doing this method is that you should probably choose something that you could do anyways in your free time, something like a hobby so to speak. That way you don’t get the feeling of wasting your time and you are more likely to stick with it.
The second method involves far less effort. But where there is a gain there is also a price that has to be paid. One of the most important rules in life, whether it is engineering, finance, or relationships: nothing is for free. The price that has to be paid in this method is literally money. If you can invest your money right, then you could guarantee yourself some nice rewards down the line. The problem is that nobody will give you easily free money, that is why a good chunk of money is needed to make decent returns, but this depends on what you aim is. Some good examples will be introduced later on. In this method it is important to always think about the risk- reward ratio. There is a common strategy to only invest what you can afford to lose, especially in the riskier assets. But now let’s get into some specific examples.
Method 1: Examples
Lets start with the obvious once. Become a content creator, preferably on Youtube, Twitch or TikTok. I think this example is very well known and is being suggested to death by every finance YouTuber or Blog. Well, I have to declare myself guilty of doing that myself. I spare you with the details, but in my opinion this is not a great way anymore because this niece is very saturated. In my opinion it is very hard to come up with very original content but if creating content on these platforms is something that you are passionate about, give it at least a try. You will never know, maybe you can be the next Internet sensation.
While the next example is related to the first one in some ways, I do think it is kind of different. Becoming an affiliate marketer can be done without being a big influencer. The problem with this is that you will need the reach to get to the people to buy the stuff that you want to get a commission on. But what about all these Internet courses that promise you to teach the secrets of that and make you rich you might ask. I would say: Forget about them! These are literally scams to make money of you and if these courses are free don’t forget what I mentioned in the beginning! Nothing is for free, so if the course does not cost anything, you are the product! But I am shifting into another direction here. To close this example: Yes, it is very much possible to be a good affiliate marketer without being an influencer, but it will make it much easier.
The third and final example for the first method is to create an online shop with a product idea or even an own brand. This is something that I always wanted to try out but never had the time to really invest into it. The idea is simple, build up a system where you can use the print on demand features by several service providers like pinterest. Then you could start selling your stuff on Amazon or Etsy by paying a small commission. This works very good with some all-day products like cups or T-Shirts. If you are very talented in artworks you can even create your own brand or directly sell your art without having such a shop. Either way you would make money for a one time work and will be able to scale your income up if you are successful.
Method 2: Examples
Lets continue with the second method. We remember, this is the method where we use our hard earned money and try to invest it so that the money can work for us. So what are our options? I like to differentiate between different price classes, so lets begin with the lower price class.
In this price class we can find the traditional and well known assets. Something like a S&P 500 ETF with low fees. Just by putting in money into it in a period amount of time you would be able to grow your wealth. There is a statistic that says that since the existence of this Index the index never went negative over any 20 year period. This means that this way is probably a passive income for the future but thanks to compound interest you could make your money work for you. Also I want to mention that this is not limited to people with small amount of money but it is a way to start of.
Another way in the lower price class would be crypto. Here we have several different ways of earning passive income. One of them I covered in one of my previous articles and this would be liquidity pool farming. While I really like the idea of the amazing yields people are able to get it is always very important to mention that the riskier the project is the higher is the yield. That means that if you want a 100% return on your investment there is a good chance that you might lose everything. A similar but in my opinion more safe way is the lending feature on many exchanges. Here, you have also the option of whether you want to lend it over a centralized or decentralized exchange. Both have their pros and cons but the principle is more or less the same. Give away your funds for a certain amount of time and get more of it later. In my opinion it is a good way to earn passive income if you just hold your asset and want to earn some additional rewards. While I know that staking is something completely different on the technical level, the result could be considered the same on the cash flow level, that is why I will not go into further detail for this one but just mention that this is also a very valid method if you are believing in the blockchain.
Last but not least, the holy grail of the holy grail: Real Estate! Who doesn’t want to have several houses or an appartement complex and live of other people’s rent. While in recent times this market was little bit crazy I must admit that it is still everyone’s dream, or at least it is mine. So why do I say dream? Well, because I would consider this an example reserved for people that are in the upper price class. To be able to buy a house and rent it out, you need to have a solid amount of money to be able to invest. But there is a small loop hole which is REIT. This stands for Real Estate Investment Trust and can be considered a company that pays you dividends while you are holding their shares. These shares are like very small properties and the rent can be considered a very small rent. With the money of the share holders these companies are buying Real Estate and Renting it out. A portion of the rent that they are earning is getting paid to the shareholders as dividends.
Conclusion
To close this article, I wanted to mention that there are probably way more ways of earning this dream of a passive income. Just know that there is no easy way to wealth and everything in life that is worth having needs to be earned. With that being said, I really look forward to see what other ways of passive income you have in mind and whether you could inspire other people to new ideas!
Published by ga38jem on
LeoFinance|read.cash
On 15th December 2021
Posted Using LeoFinance Beta