What Is Passive Income?
Passive income generally comes from 5 basic parts – We call it “The 5 Pillars”. Each pillar includes multiple methods for generating passive income. By diversifying your sources of passive income across more than one pillar, you can reduce risk and create a more stable financial foundation.
Pillar 1: Investments (Difficulty: ★★☆☆☆)
Investing in financial assets such as stocks, bonds, and index funds can generate passive income through dividends, interest, or capital gains.
To begin, open a brokerage account, which has a low barrier to entry, making it easy to start investing. However, mastering it can be challenging.
A straightforward approach is to research exchange-traded funds (ETFs) or dividend-paying stocks that align with your investment goals, such as those in the S&P 500. You should consider investing 20% to 80% of your savings into these assets.
Typically, if you are younger and more willing to take risks, you might opt to invest up to 80% of your savings. Conversely, if you are retired or more risk-averse, it’s advisable to invest no more than 30% of your savings, though ideally, you should still have at least 20% of your savings in the market.
Pillar 2: Real Estate (Difficulty:★★★☆☆)
Acquiring physical property to generate rental income or investing in Real Estate Investment Trusts (REITs) for dividends from real estate portfolios are two effective ways to earn passive income from real estate.
If you have enough money for the down payment, purchasing a duplex or a two-bedroom apartment allows you to rent out one of the units to others.
Pillar 3: Digital Products (Difficulty:★★★★☆)
To create downloadable or streaming products such as e-books, online courses, and design templates that customers will purchase repeatedly, you need to have specialized knowledge in your area of expertise. While this method of generating passive income can be more challenging than others, it can also be rewarding.
Getting started: Use platforms like Teachable or Gumroad to bundle an e-book with a short video tutorial. This approach will help you capture email leads for future product launches.
Pillar 4: Royalties & Licensing (Difficulty:★★★★★)
Earning recurring fees whenever your creative work is used or purchased can be a great source of passive income. This includes products like music tracks, photographs, and code libraries.
Getingt started: You need to create high-quality assets, such as audio tracks, photo packs, or code snippets, to ensure that someone will be willing to pay for your products. Additionally, it’s important to regularly update your metadata or add new assets after posting your products online.
However, managing royalties and licensing can be quite challenging, as it requires specific skills and a significant amount of time for maintenance. If you decide to pursue this route, consider bundling multiple related tracks or photos into a single collection to increase pre-sale revenue.
Pillar 5: Online Platforms (Difficulty:★★★★☆)
Building a web presence through a blog, YouTube channel, or podcast can be monetized via ads, sponsorships, or affiliate links. In this scenario, you’ll become an influencer. While this is also a side hustle compared to pillars 3 and 4, it requires significant time investment because managing an online platform necessitates regular updates.
Get started: Begin by finding a niche and selecting a platform. After that, sign up for Google AdSense and Amazon Associates to generate ad revenue and affiliate income, respectively.
It’s important to note that this isn’t easy. You’ll need to publish 1-2 high-quality pieces per week, optimize your content for SEO, create downloadable freebies, and monitor analytics to adjust your topics as needed. This means tracking your actual revenue versus your effort and focusing on what works best. Additionally, consider transforming your long videos into short “teaser” clips for platforms like Reels or TikTok to increase your followers and audience engagement.
Conclusion
Work Smarter, Not HarderPick One Pillar to Start and Expand to Others
Begin by focusing on one pillar for your passive income, much like constructing a house. Completing this initial pillar will help you maximize your income potential. Before diving deep into it, consider allocating a small “pilot budget”—whether in time or money—to test its viability.
Automate The System
Once you establish your passive income stream, automate processes such as reinvesting your earnings or auto-posting blog content. As your side hustle grows, consider building a team to help automate larger portions of your workflow.
Apply 80/20 Principle1
Remember that 80% of outcomes come from just 20% of the factors involved. If you can identify the most effective methods for generating passive income, you’ll likely see that your earnings adhere to this principle.
“Work smarter, not harder”
Next, we’ll start our lesson 1.
Footnote
- 80/20 principle also known as Pareto Principle
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