For all the talking I do about passive income ideas, it is easy for me to assume everyone knows the benefits of passive income because I know them so well. But not everyone actually knows what is passive income.
With Master Passive Income I am dedicated to sharing with you how I use passive income to quit my job and live the life I want to live.
Let’s go through a primer on what is passive income, is not, it’s benefits, and how to attain it.
What Is Passive Income
Passive income is working one time and getting paid over and over again. Just like if you wrote a book and sold 1,000,000 copies of it, you only did the work one time but made money every time it sold a new copy. Or like buying one rental property and making money every month from the rent is brings in.
The term passive income has been thrown around a lot recently. People use the term for things like multi-level marketing, starting a sole-proprietor business, and investing in the appreciation of stocks. The problem with these is that they are not passive.
For something to be considered truly passive income, it has to fit the definition of both passive and income.
Passive: used to describe someone who allows things to happen or who accepts what other people do or decide without trying to change anything.
Income: money that is earned from work, investments, business, etc.
When you put these two together, you have someone who earns money without doing anything to earn it once it has been started. The only work you do is when you start the passive income business. After that, the money comes in whether you work not.
If you want to quit your job, you need to replace your hourly/salary income with an income that comes in whether they do any work or not.
I believe life is better when you are not living in a cubical, behind a counter taking orders, or even being a sole-proprietor grinding out each day to make a living. All of these have one thing in common. You work one hour, you get paid for one hour.
Wouldn’t it be fantastic to work one hour and get paid hour after hour continuously? Wouldn’t it also be fantastic to get paid while you are exercising, playing with your children, on vacation, or even sleeping?
All these things are possible for you through passive income.
Work One Time and Get Paid Over And Over Again
Passive income allows you to get paid by the value you bring, not the hours you put in. If you have $3,500 in expenses per month and your passive income is $4,000 a month, you can quit your job and design your life the way you want to live it.
Since we all have monthly bills to pay, monthly cash flow from passive income is the necessary to quit your job.
Monthly cash flow from your passive income will allow you to not have to work while still paying your bills and covering your expenses.
The Rich Spend Their Time Making Passive Income
The secret most rich people know is how to spend their time and money acquiring assets. An asset is basically something that puts money into your pocket.
Businesses, real estate, intellectual property, inventions, etc. are all assets that the rich acquire to earn themselves monthly cash flow.
They don’t work hourly jobs that earn them a wage. They own companies that employee people who make an hourly wage to work for them, making them even richer.
Passive income is a way for you to not have to work an hourly job again by bringing in monthly cash flow.
I found a terrific article that explains how you can get started in passive income quickly and with very little money. Check it out on Chain of Wealth.
How to Master Passive Income
There is always a beginning for everything that we do. When I started investing in rental properties, I was nervous, worried, anxious, and very excited about the possibilities.
Trying something new that can possibly make you lose lots of money is hard to do but I saw that the benefits far outweighed the risks. I was already investing in the stock market which is risky too.
Since I was already investing in the stock market, I figured that rental properties are the next logical step for my investing future.
There are certain steps that you need to take before you invest in real estate. You want to make sure that this is the type of investment you want to pursue.
“Today knowledge has power. It controls access to opportunity and advancement.” – Peter Drucker
To be like the rich, you need to think like the rich. A seed planted will not grow unless it gets the nutrients it needs from the soil around it and the correct amount of water.
If the seed is sewn on rocky ground where there is not much soil, the seed may get water, but it will not get the nutrients it needs because there is little soil.
If the seed is sown on a path, it will get eaten by the birds and never have a chance to start the growing process. The only way for a plant to grow is to be properly planted where it can get the nutrients it needs for it to grow, then God does the rest of the work.
Likewise, the only way for you to grow is to get the nutrients you need in order for you to grow. By educating yourself like the rich, you will gain the knowledge, wisdom, and examples you need to grow into the person you want to be.
If you want to learn how to be a piano player, do you educate yourself on how to be a plumber? No, that would be crazy. To be like the rich, you need to learn from the rich.
Find a Coach Or Mentor to Show You How They Did It
Try to find those around you who are where you want to be, and learn as much as you can from them. Find a mentor/coach, listen to podcasts, read books, etc.
If you educate yourself about how to be like the rich, you will be able to design your life the way you want it and be free from having to work a job your entire life.
Identify your current situation in life
“Identify your current situation in life“There is no substitute for accurate knowledge. Know yourself, know your business, and know your men.” – Lee Iacocca
Everyone has a starting point on any journey they take. Because of life experiences, some may be further along or behind than others. In order to take the first step, you need to assess where you are on the journey. Once you find your starting point, you will be able to know how to take that first step on the journey to becoming rich.
The first step in the long journey is to find out your current financial situation with the attached financial worksheet. This can be a difficult process to go through, but it is crucial because all the other steps build off of this.
Your financial worksheet is the foundation you have built your entire life, and it is time find out how solid that foundation is. Take the time right now and complete the financial worksheet on the next page.
“What a banker WILL ask for is your financial statement. Your financial statement is your report card for the real world.”
– Robert Kiyosaki
“All our dreams can come true if we have the courage to pursue them.” – Walt Disney
Sixty-seven percent of rich people set goals for themselves in life and business as opposed to eight percent of the poor. By setting goals for yourself and writing them down, you are creating a roadmap to your life. Think of where you want to be in five years and start with that end in mind.
Your five year goal could be to quit your job, have all your expenses paid for by passive income, and be able to travel the world. Another goal could be to have your children’s college fund completely funded and buy a new house.
When you are setting your five year goals, try to shoot for the moon and think big! Whatever you put your mind to, stay hungry trying to attain the goals. You will be able to achieve them.
Stop right now and write out five things you want to see happen in your life in five years. Think big!
Develop a Plan
“If you fail to plan, you are planning to fail.” – Benjamin Franklin
Now that you have your five year goals written down, you can plan out your action steps to attain those goals. From the five year goals, think of what it would take for you to make each goal. Let’s look at the goals of quitting your job, not having to worry about your expenses, and traveling the world.
Let’s say that you have $4,000 in expenses every month, and you want to quit your job and have enough income to pay your mortgage, bills, travel expenses, etc.
Now, think of what it would take to attain $4,500 in monthly passive income in monthly cash flow. It could be that in the next 5 years you buy a total of 15 properties that make you $350 a month in passive income in monthly cash flow.
Your yearly plan could look like this:
Year 1: Buy one single family home with $300 monthly income
Year 2: Buy two single family homes with $300 monthly income
Year 3: Buy three single family homes with $300 monthly income
Year 4: Buy four single family homes with $300 monthly income
Year 5: Buy five single family homes with $300 monthly income
At year 5, you have 15 single family homes with $300 a month coming in. That would be $4,500 a month in cash flow!
Imagine what you could do with $4,500 a month! You could pay your expenses and have extra money to spend on whatever you want! If you continue on that path of adding more properties to your investment portfolio, you double, triple, or even make ten times that each month!
Now, you may be thinking that buying properties in that example is impossible. Believe me, it is not. I have done it, and so can you! In 6 years I bought 19 single family homes that bring in $400 a month in passive income, and I did all this while having a full time job and a full time family.
If you learn how to invest in rental properties, you will have the passive income you need to reach your goals!
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What Is Passive Income Not
Passive income is not trading hours for dollars.
When you have a job, you put in an hour of work and get an hour’s worth of wages in return. Working a job is an example of trading hours for dollars.
Being a sole proprietor of any type of business is also not passive income because you have to work every day to make money. If you don’t service your customers you don’t get paid. You have substituted one boss for many different ones that can fire you whenever they want.
Earned Income = If you don’t work, you don’t get paid.
Passive income is not hoping something will appreciate in value.
Putting your money in the stock market, mutual funds, treasuries, or bonds is not how to earn passive income.
When you buy stock in a company, you are giving the company money in return for shares in the company.
Those shares rise and fall on the earnings of the company, of which, you have no control over. The officers and employees of the company have the control, leaving you with a hope the earnings will go up over time and force the stock price to go up.
Stock investing for appreciation is not passive income.
You only realize the money you gained or lost when you sell the stock. Likewise with mutual funds; they are completely out of your control.
There is a fund manager who pools investor’s money together and purchases company stock in multiple different companies calling it a “diversified” portfolio.
On the other hand, a way to earn passive income from stocks is ones that pay a dividend each month. The profits from the company is paid to the owners of the stocks on a regular basis. This is passive income and is cash flow.
Another example of passive income is writing a song that sells through iTunes. You write and record the song once, then it is sold again and again easily and without any work on your end.
Passive income is only passive when it comes in without you doing any work to acquire it and not giving up control over the asset.
Passive Income Is Not A Get Rich Quick Scheme
The very nature of passive income is that you get paid continuously for work you do only one time. If making passive income was quick and easy, everyone would be doing it. In reality, passive income takes hard work and lots of patience.
Whether you choose to invest in rental properties, write books, create a blog, etc. every bit of work you do on your business will build upon itself.
The more properties you buy, the more rent you bring in. The more books you write, the more ways you can reach your readers to find all your books. The more you post on your blog, the more people will want to follow you and read what you have to say.
Just like any business, you need to build your passive income business day after day and never give up.
Passive Income Turns Into A Huge Snowball The Longer You Pursue It
It took me almost 9 years to earn enough passive income from my rental properties to replace the income from my J.O.B. (Just Over Broke).
To get a good picture of what passive income is, imagine yourself standing on the side of a large mountain. This mountain is totally covered in snow all the way down its 3000 foot face. Now, imagine yourself picking up a handful of snow with both your hands and packing it into a snowball.
Right now, this snowball is about the size of a baseball and it is in your power to do with it what you want. You could set it back down and go on your way, or you can roll the ball down the side of the mountain.
Passive income is just like that baseball size snowball. What you do with it will determine how big that snowball can grow. Since you are reading this blog, you are the kind of person that wants to roll that snowball down the mountain to see how big it will get and how far it will go.
Now imagine yourself rolling that snow ball down the side of the mountain. At first, it moves slowly and grows little over time. After a little while, the ball doubles in size. The once baseball size snowball has become the size of a softball.
Then, after even more time, that snowball becomes the size of a basketball.
As it keeps rolling down the mountain, it increases in both size and speed. After even more time, the basketball sized snowball becomes the size of a small car.
Now the snowball is really moving fast and is gaining in size by the second. Because there is more surface area for the other snow to attach to, it gets bigger and bigger.
Once the snowball is at this size it is almost unstoppable.
Your passive income will be just like this snowball. At first, the progress will be slow and the growth will be small. Over time through, as you work hard to build up your passive income business, the speed and size will get larger and larger, just like the snowball.
Once you commit to a passive income life, you will be like that snowball. It will take time and hard work to get it to grow. But once you build it big enough, it and you, will be almost unstoppable.
Check out the next post where we will continue the series on what is passive income.
Let me know what you think. Post a comment below.