DATE: April 12^th, 2023

TO: Reader

FROM: Blue

SUBJECT: Passive Income 101: The Basics + Strategies to Unlock Financial Independence

Dear Reader –

Passive income is a type of income that requires minimal effort to maintain or earn. Compared to active income, which is earned through working through an Employer. And is also where you are exchanging your time for a paystub or actively selling a product or service. Passive income can come from a variety of sources, including investments such as dividends, rental properties, or an automated online business. In this article, we will go over the basics of passive income and strategies to implement them so you can unlock the full potential of your financial independence. 

What is Passive Income:

Earning money passively means doing so without exerting much effort. Once your passive income stream is established, it will start to generate cash flow for you even if you are not actively working on it. The allure of passive income is that once it is set up you can continue to generate cash flow without having to put in any additional effort into it. This can give you a feeling of stability and security regarding your finances.

Why your financial strategy should include passive income:

Passive income should be included in your financial strategy for several reasons.

1. It diversifies your income streams, which reduces your overall financial risk. If you rely solely on your job for income, you are vulnerable to sudden changes in the economy or your company’s fortunes. However, if you have passive income streams, you have a backup source of income that can help you weather the storm.
2. Passive income can assist you in obtaining financial independence. Over time, your passive income strategy can support your living expenses. This means you may no longer be dependent on a standard 9–5 job.  The goal here is to no longer exchange your time for money, but rather have money work for you. This financial independence will lead you to spend more time with your family and friends. Or work on initiatives that you are passionate about. In essence, passive income might enable you to live life at your own pace.

Different Types of Passive Income

There are several different types of passive income that we will discuss next. Each of these have their own respective advantages and disadvantages. Some of the most common forms of passive income that we have included into our strategy are the following:

1. Rental Properties: For individuals with investment cash, rental properties are a common source of passive income. You can generate a dependable stream of rental income by buying a property and renting it out to renters. However, purchasing rental property involves a sizable initial cost and may incur recurring upkeep expenses.
2. Dividend Stocks: Stocks that regularly pay dividends to stockholders are known as dividend stocks. You can generate a consistent income stream without actively managing your portfolio by buying dividend-paying companies. However, dividend income is often smaller than other passive income sources, sometimes as low as 1% yield.  Dividend stocks I actively look at to incorporate into my portfolio include the S&P’s Dividend Aristocrats. These dividend stocks are companies that have consistent dividend growth for 25 consecutive years.
3. Peer-to-Peer Lending: This passive income stream is the practice of offering loans between people or businesses over the internet. You can get a consistent source of interest income by investing in loans. However, there are risks involved. There is a chance that borrowers could default and stop making payments on their promises. Thus, it’s important to investigate an investment before making one.  One site that we have used in the past for peer-to-peer lending is Prosper.com. 
4. Affiliate Marketing: Affiliate marketing entails promoting others’ goods or services in exchange for a portion of any revenues generated by your advertising. Here you can leverage your existing social media accounts, blog, or other internet platforms. For individuals with a significant web profile, affiliate marketing can be a reliable source of passive income.
5. Digital products: Ebooks, online courses, or printables are just a few examples of digital products that can be a source of passive income.   In order to have a successful digital product, you want to provide content that is high-quality, unique, and valuable to the end user. However, setting up your digital product such as an online course may take significant time upfront to develop.

Strategies to Implement Passive Income

Implementing passive income streams requires upfront work or investment dollars, but the rewards can be well worth the effort. Below are some strategies to get you started down your passive income journey.

1. Determine your goals: Before you begin, it’s important to determine what your goals are for passive income. Are you looking to replace your current income, or just supplement it? What is your timeline for achieving your goals? By setting clear-quantifiable goals, you can develop a more targeted approach to creating passive income streams that align with your financial objectives.
2. Choose your passive income stream: Once you have set your goals, it’s time to choose the right passive income stream that works for you. Consider your interests, skills, and available resources to determine which type of passive income will work best for you.
3. Invest in education: Learning how to implement passive income effectively is key to your success. Consider taking online courses, reading books, or attending seminars to expand your knowledge and skills.  Not only will implementing this step be good for your passive income goals, but also for any goals you have.  For instance, in the past I wanted to leverage my personal brokerage account to make additional income through option trading.  In order to achieve this, I invested a large amount of time and effort reading, watching tutorials, and asking questions until I was ready to start trading.
4. Build your platform: For many types of passive income strategies, building an online platform is critical if you want to leverage affiliated marketing or digital products. The key here is that you want to have a strong online presence that helps you build an audience or community. Consider creating a website, blog, or social media profiles to connect with potential customers and build your brand.
5. Diversify your income streams: I can’t stress this point enough on how important it is to diversify your income streams to minimize your risk while trying to maximize potential returns. It not only means to invest in multiple types of passive income, such as rental properties, dividend stocks, or digital products.  But you can also diversify within these major categories.  For instance, diversify your dividend income among different stocks, or companies that operate in different sectors such as Healthcare or Energy.  Likewise, you can diversify your rental properties between residential versus commercial, or by different geographies.

The Journey Does Not Stop Here. Continue To Invest And Grow So You Can See The Fruits Of Your Labor.

Overall, passive income can be a powerful tool to achieve financial freedom. By diversifying your income streams and implementing the right strategies, you can create a steady stream of passive income that provides a sense of stability and allows you to live life on your own terms. Keep in mind of the different types of income streams such rental properties, dividend stocks, or online businesses, and understand the pros and cons of each in order to choose the best option for yourself.  But keep in mind that the key is to stay focused on your quantifiable-goals, continue learning and adapting, and remain committed to the pursuit of financial success.

Live Well,

-Blue