Typing in the words “beginner passive income” can often be where people start when they first get wind of the concepts of passive income, and want to know how to start.
Perhaps this is exactly what you did today to find this article?
Passive Income – What Is It?
Passive income is money you personally receive from assets, businesses, intellectual property, trust funds etc. in which you are not actively involved.
Your job isn’t passive income because you are exchanging hours worked for a pay check.
Your side hustle is probably not passive income either for the same reason – you’re exchanging your life hours for money.
Passive income needs to be just that – passive.
Passive means very low effort, low activity, low involvement and low need for attention.
For most, passive income seems like an impossible dream.
However, the inextricable thing is, that true passive income often begins with a burst of high activity – but we’ll explain that in a minute.
True Passive Income – It’s Quite Rare
In its most purest form, passive income is quite rare.
For income to be truly passive it means we have never had to work for, or work towards, or work on the assets that produces our income.
Examples of this might be:
- A trust fund built by our parents of which we are the beneficiary
- An inheritance of dividend paying shares, rental properties or investment bonds
- A gift of an insurance annuity from a deceased partner or relative.
- A lottery win.
So, the distinction here is that there has been zero effort by the receiver of the passive income – very, very rare.
So, let’s get a bit more realistic then – especially as it pertains to beginner passive income.
How Passive Income Isn’t Really Passive
There’s many assets that produce really good cash-flow for their owners and are labelled as passive income, but in fact, they are not truly passive.
Some examples of this might be –
- Houses (Real Estate) – Often labeled as passive income, however anyone who has a self-managed portfolio of real estate assets can tell you, that once maintenance, tenant management, advertising, rent payment chasing, repairs, taxation and insurance are all attended to, it can hardly be labelled as passive income. It’s often a right royal pain in the bum.
- Online Stores (E-commerce) – Also often advertised as set-and-forget or sometimes advertised something like ….. “Only requires 4 hours a month to replace your income”. Those who run e-commerce stores have a different tale to tell – plenty of ongoing hard work is still required. Often the advertising costs can eat up al the income for quite some time before it becomes profitable.
- FOREX trading, Stock trading, Crypto trading etc – Yep, often spruiked as lifestyle businesses only requiring small amounts of effort for very large profits. The truth of the matter is quite the opposite. These business require very high attention to detail and on-point market awareness combined with not-so-cheap software and plenty of risk.
- Bank interest – Much too frequently referred to as “money for nothing”. This ignores the sheer effort required to earn and save up the money in the first place! Even more annoying is the fact that bank interest almost never exceeds the current inflation rate. Your money often goes backwards. The same can be said of certain government bonds and the countless high fee investment products available to most consumers.
None of these or similar strategies are every just set and forget, nor are their cash flows passive. Thus when we read articles that promise this-or-that product or system producing passive income, it’s likely that this is not entirely truthful. Either we are going to purchase that product with money we’ve actively earned, or more likely, there is an unmentioned requirement to input significant time and effort before the said product begins to produce income under its own steam.
Often, sadly, the offering is snake oil.
But it’s not all bad news. Many income sources from businesses and side hustles are legitimately excellent and quite lucrative – certainly worthwhile doing but just not passive.
Active Income Then Passive Income
Realistically, most passive income streams require a significant amount of upfront work or savings before they can become self-sustaining as a passive income source. That’s a fact. there is NO free lunch on this one.
Think it though. The hard work required to save up and buy dividend producing shares is not passive, even though the dividends themselves are truly passive.
In much the same way the time, blood, sweat and tears required to save up and buy a portfolio of commercial properties is certainly not passive, even though the rental income received from those properties is probably quite passive.
However, this is the pathway to passive income available to most of us. It’s honorable. It’s realistic. It’s achievable. It’s beginner passive income.
Additionally, we will certainly appreciate the end result – passive income – when it is ourselves alone who have put in the up-front hard work.
Things that are worked for, are much less likely to be squandered.
We cover my preferred strategy of creating passive income under the section of this site entitled Income Investing. It’s worth a read as a beginner passive income seeker. It’ll give some more specifics.
Briefly, this beginner passive income method consists of three steps:
- Purchase cash-flow assets
- Purchase income growth assets
- Build your own income asset
All three steps can be achieved incrementally over time, there is no rush ….. or maybe there is a rush, and that’s certainly doable too.
The fun starts when your assets begin to snowball and their income outstrips that of your day job.
There’s a lot to like about that.
Hopefully, this short chat about beginner passive income has whet your appetite to do some more personal research. You’ll find plenty of articles on this website to help you along your way as well as plenty of external links in each article to broaden your discovery.
Cheers
