December 18, 2009, 5:34 am

4 Ways to Generate Passive Income

by: The Financial Blogger    Category: Alternative Income
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A few ideas to start with:

Continuing my series on how to reach a 6 figure income without working 50 hours a week, I will now move forward and talk more about passive sources of income. If you want to work less and earn more, the only way to make it happen is to create little money making machine that works for you while you are sleeping (i.e. generating passive sources of income).

Passive income has been “the buzz phrase” of the 21st Century. Coming from the strong wave of techno’s and dotcom’s, everybody started to think they could become an online wiz and make money via the internet. Well truth is that real life is not a bowl full of cherries, it’s more like a box of chocolates, you never know what your going to get!   and usually it ain’t that easy!

Passive income is hard to earn

Regardless of the source of your income, all kinds of passive income is difficult to earn at first. Unfortunately, we only see the end results of those who succeed like John Chow or Pro Bloggers who are making a few hundred thousand dollars annually with their “passive” income models (they are still work many hours to earn their keep).

So making money online is not that easy and the competition is rough. It is probably tougher since you compete against the entire World! Just take The Financial Blogger as an example. While it is primarily a Canadian Blog (Canada is still more than 35 million people!), most people that read English and are interested in personal finance will compare my blog to all the other English blogs out there (coming from  around the globe). So why should they read my blog instead of ten thousand others? This is the question you need to ask yourself before you start your online adventure.

While this series will be more about how to create an online passive income (since this is what I was able to do!), I wanted to share a few other possibilities I have considered and that may be of interest to you:

#1 Rental properties

Buying real estate is definitely part of my plan to become a millionaire. While it is more complicated than it seems, I still think that owning property is a really good way to generate income though passive channels.

People will always have to live somewhere and banks love tangible assets. So obtaining financing for such projects is easier than trying to get an unsecured line of credit to buy a dotcom address 😉

On the down side, you are required to have a substantial downpayment before thinking of buying something. In addition to that, you should also be or know a handyman that will take care of your property maintenance. Sometimes renters can be pretty annoying too 😉

#2 Investment income

Then again, who has not dreamed about having dividend income deposited in their bank account on a monthly basis? On the other hand, in order to be able to live from your dividend or interest income, one must have a lot of money invested in the market!

Investment income as a passive source of income will probably only happen at my retirement stage so I will need to build a strong portfolio.

#3 Starting a “real” company

If you are good at what you do at your job, you may want to consider creating a tangible company. However, you must remain very careful about your primary goals: you want to create a passive source of income, not become your own boss.

If you simply become self employed, you will work the very same amount of hours (and might earn more than before). However, your “company” will depend on you and you alone. This is not a passive source of income. You must be able to hire others to do most of the work and generate income even when you are not there. This is a common mistake most people experience.

#4 Making money online

Making money online is probably the most cliché expression when we talk about passive income. As I said before, we all think that we only need a computer and an internet connection to succeed…. Ooohhh wishful thinking!

But seriously folks, you’ll need several skills to succeed:

– Technical skills to build and maintain your website

– Writing skills to produce content

– Search Engine Optimization skills to be searched, found and read

– Monetization skills to create, diversify and maintain multiple sources of income streams generated by your websites.

If you have (or can get access) to these 4 pillars of generating money online, you will like what will follow on this blog in the upcoming months ;-). From time to time, I will talk about making money online, how to buy a blog and manage a blog. The Financial Blogger won’t transform into one of those then thousand blogs about making money online. It will remain a Personal Financial Blog but I will add a making money online side to it. Stay tuned!

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Comments

Good list!

The best passive income is through interest income. Nothing is more passive than watching your monthly savings grow and doing nothing.

The tipping point is about $250,000. Once you have that nut saved, things really start happening.

by: The Financial Blogger | December 18th, 2009 (10:11 pm)

Unfortunately, there is not much to get excited about interest rate. Once you have paid your taxes, chances are that when inflation picks up, you will probably end-up with a negative rate ;-(

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Interesting… the real challenge with passive income is it often requires active management. But, that’s they way it goes sometimes.

What do you guys think about ALLY.CA

There online bank offer 2% savings no FEES no MIN

And 3.6% on a 5 yr gic

I am not really a big fan of high yield savings account (2% minus taxes = 1%… if you have a little inflation, you hit a negative return). However, they seem to offer some of the highest rate in the industry right now.

Unfortunately, most savings account work with promotions and end-up with lower rate after a few months…

boy that’s strange every one talks about inflation

where is it?

my taxes where i live i get 15% discount
nat gas bill get 10-20% discount on what the province charges
if inflation is here then why havn’t we seen higher gic rates
the bigggest problem for negative return could be the stock markett !! going forward !

and i would pay no taxes in a Tfsa acct

sorry but iv’e had bad run in with 2 fincial planners and 1 stock broker they were no good none of them
Gic’s are better than all of them comibined
and people with managed money will have to pay HST to the ont gov’t
have fun with that one to

by: The Financial Blogger | December 20th, 2009 (6:06 pm)

@ Chad,

#1 I understand that you may have run into some clowns (there are clowns that work as financial advisor / stock broker 🙁 ). However, 2% won’t get you anywhere closed to a comfortable retirement.

Let say that you need $500K to retire at the age of 65. If you are 30, you will need to put $8,269 per year at 3% (let’s presume interest rate will rise). If you invest a part of your money in the sock market, you can aim for a 5% to 6% return (conservatively). Therefore, you only need $4,987 per year to get 500K in 35 year (at 5.5%).

I have clients who invested in 2004 and their 2009 investment statements are showing returns around 4% to 5% and this include the worst stock market crash ever since the Great Depression. In a few years, they will show a lot more money than the 2 – 3 or even 4% return by GIC’s.

#2 We don’t have inflation this year, but if you want to look at this year, the stock market soared by 30%. When inflation will come back, your 3% yield will seem pretty small.

In the end, you can still go with GIC’s, however, you will have to put a lot more money aside to make sure you have enough to live at 65….

I hope you find a good financial advisor one day!

Yes the stock markett manipulated up 30%. We’ll see if the gains will hold in the new year.
Research that I’ve done is the economy is not rebounding as much as they hoped.And the volumes on pretty much all stock exchanges is not enough to hold the markett to where it is!
I’m not saying gic’s are be all and end all.But for now and maybe the next few years they might be.
Analysts are all over the map again where this markett is going!
Just take the price of oil one guy says 30 next says 150.
I know as a consumer if we see $2.00 a liter for gasoline that’s not going to be good for the economy.

by: The Financial Blogger | December 21st, 2009 (5:31 am)

Chad,

I am not going to debate about the stock market since no one can predict the future. However, the past 100 years of history has shown that the stock market always rebound.

Since there is no way to tell if the stock market will continue to go up or not, the only way to make sure you are part of the next bull market is to stay invested.

If you go out the market and stick with GIC’s, don’t ever come back. Because if you do, you will do it after 2 or 3 years of growth and will have missed most of the bull market. Then, the market will go down again and you will lose more than you have gained 😉

The economic situation is not perfect in Canada and it is worst in the USA. However, if you have a well diversified portfolio, you should also have stocks in Asia. China and India are doing well and it is the same thing in Australia (they have increased their interest rate a few times this fall).

As for the price of oil, well this is always commented by clowns. They said it was going to hit $200, then $10 and now I am not surprise they talk about $150 😉 I don’t really read about oil price prediction… I prefer to see a fortune teller 😉 LOL!

Excellent ideas on how to create passive income. It takes multiple streams of income to achieve wealth.

Nice listing 😉

I already got no 1. But, if you’re not a handyman or do not know one working for «a beer and a pizza»… be prepared to put your money on the table. Hopefully, we’re quite handy my (future)husband and I, as our pals… and they like being paid with beer and pizza 😉

Also, I got my income property with the (now dead) CHMC 40 years mortgage, because we didn’t had 20% money for downpayment… and because we were’nt sure we want to keep it forever, so with taxes it was better that way.

And… I DO NOT RECOMMEND ANYONE DOING THIS… Seriously I’m telling you, it drove me insane for the past 2 years, and remember we’re quite handy! So keep your money and mental wellness if you’re not sure you have enough money AND enough skills to take care of this by yourself.

If you have both… well have it inspected before you make an offer (I’m sooo happy we did!), and… go!

by: The Financial Blogger | January 20th, 2010 (12:15 pm)

@ Mama Zen,

I’ve always wanted to have a rental property but the “side problems” that comes with turn me off a little bit…. I am definitely not a handyman 😉

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