best ways to make passive income

PASSIVE INCOME: The easy way or the hard way!

Are you looking for the best ways to make passive income? If I watch one more pyramid scheme internet marketer spam my inbox about effortless passive income, I’m going to flip my lid. Even if you are talented and motivated enough to build your network up to the point of passive income, the intense effort and time you have to put in up front is anything but passive. FAR MORE OFTEN, I’ve seen internet marketers succeed by putting in the work up front in order to generate the lump sum capital. They then start to INVEST that capital into assets that produce passive income.

 

best ways to make passive incomeYour income isn’t passive until you have a system or an asset that produces cash flow WITHOUT requiring much of you time or effort. For entrepreneurs, that means having people and systems in place that run your business even when you’re not there. For investors it means peeling yourself away from the computer by shifting from the buy and sell mindset to the cash flow mindset.

The Hard Way to Generate Passive Income….

In my opinion, there’s many hard ways to build up passive income or residual income streams. One way is to work as an employee nickel and diming your nest egg. The problem is with this formula is that most employees don’t have much left over after paying bills. So they either have to remain very frugal, or they have to be satisfied with a meager lifestyle at retirement. The other drawback is that most people who work and invest in retirement accounts tend to know little about leverage. They don’t know how to borrow other people’s money to amplify their performance consistently. These reasons are why the majority of baby boomers won’t be able to retire.

The other really tough way to generate passive income is to rely exclusively on a business you’re building. Businesses certainly can be built to the point of total automation. And it should be your goal as an entrepreneur. But not all businesses get there. If you put all your eggs in the basket and still fall short, you wind up with a really cranky tired business owner who still has to show up to work every day to keep making money.

Most financially free individuals funneled profits into other passive income assets as they grew. That includes both entrepreneurs who were able to automate their businesses, and those who weren’t. For example, most real estate investors are very active in their rehabbing projects knowing that they can put the profits they make into buy and hold properties down the road.

 

The Easy Way to Generate Passive Income….

What’s the point of building up passive income if you’re too tired or too old to truly enjoy it? The idea is to achieve financial freedom soon rather than later. That means having a game plan that builds up your passive income quickly enough to support your lifestyle earlier on.

To get the right balance of upping your overall income, and building your passive income, think about your allocation. This means that as you earn you are putting money into different categories to be used for different purposes.

First, I recommend that you pay off as all your consumer debt. Particularly anything charging over 10% interest. The reason being is that having a balance that compounds at 10% is working against your investment performance.

After that, you should allocate a portion of your income to building passive income assets. This means investing in cash flow assets like rental properties, REITs, mortgage notes, and other assets that produce adequate cash flow. That way you can steadily build passive income regardless of how rocky your business or your career might get at times.

Lastly, I recommend putting the rest into increasing your income generating potential. As an employee, this could mean advancing your credentials. As an entrepreneur this could mean reinvesting capital into your business to build your marketing, systems, or team. That way you are increasing your potential to funnel more and more capital into your passive income assets down the road.

The idea is quite simple. You need to generate more and more capital up front. But you also need to have steady growth in your passive income assets to back you up. While I can’t tell you the exact proportion of your income that should go into each, I can say that if you focus too intensely on one or the other, you either risk having your passive income building too slowly, or you risk not having enough at all.

There are even more ways to build your passive income besides what’s mentioned in this article.

Take a look at how we build up.

About The Author

herbertkoehler

I am a college drop out who found my passion as an investor. I love the many facets of finance, investing, and business. But even more than that, I love sharing what I learn with others.

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