Very early in my relationship with money, I learned a very important lesson – you will work for money all your life if you rely only on your one brain, two hands, and two legs. Your personal resources are too limited to meet your long term financial obligations. Most of us start our financial journey like this. Unfortunately, most people never go beyond this level of income. I believe one of the most important financial goals anyone should have is transitioning from working for money to having money work for them; in other words, generating passive income. For most people, this would mean waiting for retirement to start benefiting from the pension fund. But by then, you would have spent your best years chasing after money. What if you can start now to build your passive income stream? How can you move from an active income earner – that is someone that depends on their work and presence to earn money – to someone that earns income regardless of their work or presence? Before we get on to answer these questions, be sure to subscribe to After School TV for more insightful videos like this.
The Catalyst of Passive Income from Business
200 years ago, if our ancestors left home and forgot to put off the fire in the kitchen, they will have to walk the whole distance back home to put off the fire before something bad happens. 50 years ago, if our fathers forget to turn off the gas, they could get home faster with a car. 10 years ago, instead of rushing back home, you simply call someone at home to turn it off. Today, if you have a 4 year old at home, you can reach her via video call and direct her to turn it off. What has changed throughout this time is the introduction of tools that give people speed and what our ancestors would consider a superpower.
In the same way, the tools to generate income has so much evolved over time that one person can build enormous wealth by leveraging tools and human resources readily within their reach.
The lesson here is this: to earn the passive income you need to understand the concept of; leverage. Understand how to put money and the compounded resources from other sources to work. We created a video that dives deep into how to use the concept of leverage to your advantage. Check out the video in the description below.
To better understand the concept of passive income let’s classify passive income into two categories –Investment Income and Business Income.
Investment is passive income that comes from leveraging your money to work in income generating assets; like interest, rent and dividend. You will need to put in some work to get the required knowledge to invest. But once you have invested, you often don’t need much effort on your part to keep the investment activity. Most people can keep their job while growing a lucrative passive stream of income. You can invest in the money market, bonds, stocks, real estate and crowdfunding projects.
To explore this type of passive income, you need to educate yourself on the asset classes you want to invest in and start putting your money to work for you. You can even start with small savings. For example, I know a family friend who lost his job in the bank. While his colleagues were fretting for fear of uncertainty, he was calm and confident because he had previously invested in real estate. He started saving towards investing in properties from his first salary. He was meticulously learning and applying his knowledge to buy, wait and sell lands. Then buy some more. He was able to grow his real estate portfolio over a period of 10 years. You can actually go from a single active-income earner to having an additional source of passive income by making your money work for you.
This type of passive income involves leveraging external resources to build your own product and business. It is harder to reach the level of passive income in business but it can be more rewarding in the long term. It requires investing your time, effort and money over a prolonged period of time, often with little or no reward, until the business can function without you. The good news is that internet technology has made creating this type of passive income a lot easier than ever before.
While you can leverage your money to work for you at the hands of people better at managing it, you can equally leverage other people’s time, skill, knowledge and money to create passive income generating assets. To create passive income from a business, here are three things to keep in mind.
Become a master of your time
You cannot continue to spend your time the same way if you want to change anything in your life. If you want to create a new stream of passive income while working a regular job, you have to become a master at managing your time. You have to be able to deliver your task at work efficiently and find time to engage in activities that will bring you closer to your passive income goal. You have to make out time to learn.
During my early years after graduation, I was working as a construction engineer during the day, and then writing and learning to code at night. The reason was that I knew that developing my writing and coding skills were instrumental in building my passive income stream. If you are serious about building passive income from a business, you must become a master of your time.
Start building your passive income vehicle
Internet technology has changed the game. You no longer need to save a tone of money to invest into a business. You can start with little to no money, and learn as you grow. For example if you want to create an online course to teach people your expertise, you can start with creating a blog which would require as low as $100 to start. Start sharing your knowledge on your blog and start building an audience around your niche. You can use a combination of text and video content to share your knowledge for free, while building an email subscription list. It may take between 6 and 18 months before you gain significant following for your digital assets.
You need to understand that because the barrier to entry is low, thousands of people are starting businesses online every day. The competition is crazy. People typically buy products online because of the brand or the person that is selling it. If no one knows you, you want to first of all build your profile and credibility; and very importantly give away a lot of free information, before asking people to buy your product.
If you are creating an eCommerce business to sell physical items, you may not need to take all that time building an audience. You can upload your products on popular online marketplaces and start taking orders from day one. But if you want to rise above the competition, you also need to grow your audience and also spend money on advertising.
Become a marketing machine
There is a common problem with the majority of business owners and professionals. We tend to put almost all our effort into creating the perfect product and spend little time on marketing. Coca Cola wouldn’t have existed today if not for aggressive marketing and advertising. In fact, before the creation of Coca Cola, there were many other drinks made from Kola and Coca plants. At the time, America was teeming with competition for drinks. Coca Cola was able to set itself out from the crowd, not because they had the best drink but because of consistent and effective advertising and marketing.
The key to growing your passive income vehicle fast is marketing; from search engine and social media marketing to paid advertising. Whether you are selling physical or digital products, investing in advertising and marketing to reach new leads will help you learn faster about what people want and how to serve them better.
If you want to sell digital products and are building your audience, test different marketing channels and stick with the few that are working for you. You want to sell a product you are proud of but you have to get it out to people that need it.
The keyword here is leverage; leverage technology, money and human capital to create passive stream of income. You can generate passive income from investments in the form of interest, rent, or dividend; or from a business by leveraging technology. Until next time, YOUR SUCCESS MATTERS!