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How to Actually Gain Passive Income

Updated on May 24, 2020
Josiah Jones profile image

Writer, researcher, self-improvement advocate, alternative astrologist, and a firm believer that Mercury must be destroyed.

Congratulations on joining the rest of us intrepid explorers seeking to gain income while doing absolutely nothing. Though, unless you’re already independently wealthy, you’ve got some work ahead of you. With a little hard work though, you’ll be able to sit back, relax, and watch as your bank account ticks up.

The most important and fundamental thing you need to recognize about a passive income is that it takes time to build. You’re not going to be rolling in dough overnight. You may not even be making much in the first few years. Building this kind of income takes time. Think of it as an investment in your future or as an early retirement plan.

I like to divide passive income into two categories: active and inactive. The first means income that requires you to put in work to establish the income string. Inactive is the true kind of passive income whereby you make money without doing anything. The latter is achieved through putting your money to work for you via investments.

Content

The most common form of passive income streams requires some form of content creation. Income is then gained via advertising, sales, donations, or sponsorship deals. One of the reasons I advocate for a long-term view is that it takes some time to build a critical mass of content, develop a brand or channel, and successfully build an audience.

Some types of content are more passive than others. The tradeoff, however, is the more passive the type of content, the less likely it will be to generate larger returns. This shouldn’t discourage you. Even some of the most passive forms can generate thousands of dollars a month if you keep at it.

Writing Content

Of all the content out there, the written word is the most common and the least sexy. Think about the last time you heard somebody gushing over an amazing article they just read. When was the last time the news reported on an essay going viral? Authors are lucky if the news even mentions a book selling well and there’s usually a movie or t.v. show to thank for that.

So why mention writing content? Content, such as articles, is like that job you do to pay the bills. Writing an article, review, or a blog isn’t going to be glamourous. Such writing may not even pay well at first. Stick with it, develop a backlog of articles, build your expertise, and produce useful content and eventually you’ll start to see your income grow. There’s also some tips section below that has some useful information on how to choose your topics and optimize your content.

Short form content is also easier to maintain and tweak when things change or new information becomes available. For example, if you have an excellent article on a particular workflow for a piece of software and a new update changes that workflow you only need to edit your steps and maybe update some screenshots. For a video, you’ll need to rerecord or at least record and edit the previous video. If you can’t replace the old video and maintain the old metrics that kept people coming in, then you’ll be starting over from scratch as well.

If you want to do well, find a niche, something you enjoy and know about, or something you want to know more about and focus your efforts there. As you progress, you’ll develop an idea of what does and doesn’t work and can continue to reassess your efforts and adjust.

Writing Books

The digital marketplace, particular Amazon, and the proliferation of e-readers has transformed the publishing industry and lowered the barrier to entry. You don’t have to find an agent, pitch to publishers, and be at the mercy of what they think will be likely to sell on the shelves of brick and mortar shops. We’re trying to establish a passive income stream, not hit the best seller charts. Though, hitting that last one would certainly expedite the issue.

There’s also a few different kinds of books you can write besides fiction. Self-help books line shelves. If you have a special knowledge, somebody else may be looking for exactly that. Think about what you know. Then think about whether there’s enough for a body of work. You may also want to consider if there’s even an audience.

Youtube / Streaming

Youtube and streaming, such as Twitch, are commonly associated with gaming and vlogging. While these are by far the most common, there’s plenty of niche channels from farming videos to a guy who talks about his ant colonies. If you have an interest, exploring it via the medium of video may not be a bad idea. You’ll likely want to buy a decent camera and invest in some sort of video editing software, but both of these have come down to reasonable prices.

However, you’ll need to build a substantial audience before you’ll make any money via Youtube (you currently need a minimum of 2000 subscribers) and, while the requirements for Twitch aren’t as stringent, especially if you use an outside donation system, there aren’t as large of audiences there for non-gaming content.

Education

Another way to gain some income is through providing educational content. This is most certainly not for everybody. Not only do you need to have decent content knowledge, but you’ll need to produce good quality learning materials. While it may seem easy, as someone who has spent quite a few years as an educator, I wouldn’t recommend this route unless you are highly passionate about both your topic and educating others. You also have to find an appropriate platform.

A Few Tips

Nearly all of these content types can benefit from a bit of marketing on your part. Some almost entirely demand it. If you’re highly invested in making your project a success, then take some time to look into how to market. There’s plenty of free courses online. Another great resource to look at is a beginner’s guide to SEO. Not only can it help you improve your search engine results, but also teach you how to find topics that people are looking for, but not exactly finding. These areas, if you’re willing to do a little research, can be quite fruitful.

Another way to find ideas to make content about is to think like a technical writer. If you’ve ever had a technical problem and searched the Internet, you may have come across a solution that, while it will solve the problem, is terribly written, confusing, and not easy to follow. There’s a reason the tech writing field exists. Transforming these hard to follow solutions into easy to follow and understand documentation will be greatly appreciated by anybody else with the same problem.

Patreon and Merchandise

If you’ve been building up an audience there’s another solution to how to monetize them and that’s Patreon. What Patreon offers is a way to offer your audience a subscription-based service at various levels. Each level will have various rewards that you promise to provide them. What you offer, how often, and what tiers there are is set by you. While it may require additional work to keep people subscribed, it will also keep your audience engaged and invested.

While Patreon is one way to connect audience members to content, there are other sites out there to help you sell your creative work. For example, Gumroad offers a way to sell a variety of creative products. If books are your thing, and you’d like to stay away from Amazon, then check out Smashwords.

Freelancing

While it may not exactly be passive, you’ll be building up a portfolio of work along the way. If you’ve got the time, you may be able to leverage that portfolio into paying work.

Investments

are the true passive income. You sit back, do nothing, and money magically becomes more money. Well, it’s not really magic, but it sounds a lot sexier than a long-winded explanation of how various financial systems work. This is also where you can take the money you’ve earned from your other efforts and secure yourself a nice nest egg, early retirement, and financial independence.

This is also the form of passive income with the most risk. With the other forms, you might just lose your time, but you’re not likely to lose money unless you royally screw up. If you do want to go this route, and if you care about your retirement you should, I recommend consulting a financial adviser who can steer you in the right direction for your situation and goals. They’ll also keep you from doing stupid things based on r/wallstreetbets.

Stocks, Dividends, and Bonds

Wall Street, the Dow, Nasdaq, FTSE, S&P 500, etc… There’s lots of names thrown around when it comes to stocks and for the lay person, they might as well all be called Karl or anything else. They’re a collection of publicly traded companies or commodities that can be bought or sold for some price a share. When you buy one and that price goes up, you can sell it for a profit. If it goes below what you bought it, then you’d lose money if you sold. The good news is, over the long term, prices tend to go up.

There is another basic aspect that is relevant to us, especially if you want passive income you can use in the present. That’s dividends. These are a set amount of money per share that a company will pay its shareholders per year. Usually these are paid out per quarter and can either be taken as gains or reinvested. This is where that financial adviser can come in handy in determining which dividend stocks are right for you.

Bonds and CDs are another form of investment income that usually carries lower risk, but also lower return on investment. Depending on your situation, you may wish to include some in your portfolio. Again, consult your adviser.

Real Estate

Invest in real estate they said. It’s great they said. Whether directly or through something like an REIT, investing in real estate can be another way to gain a passive income. You’ll have to decide if you want to be a landlord directly, hand over the day-to-day to a management company, or invest in an REIT. You can also decide if you want to focus on long-term rentals or cater to the short-term rental market; however, given some recent events, the latter can fall apart quickly and that’s before you consider potential changes in laws and regulations.

Another thing to consider is, if you’re buying single-family homes, you’re contributing to making the real estate market more difficult for your fellow citizens who are looking to purchase a home. You may not care, but it is something to consider.

Get Started

Now that you know a few different ways to start building a passive income, pick one or a few that speak to you and get to work. If you can turn your project into a hobby, all the better. Remember, you have to put in the work up front to reap the rewards later. It’s not just about creating; you may also need to market. Also, look out for schemes you don’t want to get tangled up in. Don’t buy someone’s book promising to show you how to get rich. There’s nothing in that book you can’t find for free on the Internet. In absolutely no circumstance should you join a multi-level marketing scheme. Keep a level head, make slow and steady progress, and you’ll eventually reach your goal.

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