If you’re reading this, you’ve probably already explored a few passive income strategies to live the life of your dreams…or to just bring in extra cash. Either way, having another source of income can help during the good times and the bad. An added layer of security is generally a good thing! Your financial goals will help you understand how passive income may fit into your financial plan. For today, my goal is to decipher what is passive income and what is not, then to help you think about the next steps to getting started.
So, what is passive income?
When I talk about passive income sources with clients, we are usually referring to rental income, book sales, online courses, or a hip new app. In any of these scenarios, passive income means making an investment of money and/or time and getting a return in the form of future payments. This could be great for cash flow and a layer (big or small) of protection if you lost your day job.
While it might feel like a second job to get a passive income source up and running, the goal is to generate future cash flow without doing much, as opposed to your primary job. You are putting in the time and effort to generate a future source of cash, without having to go into work every day. From that perspective, I’d say it’s more of an investment. But you will likely still have to put in a little time to update, maintain or tweak your passive income source. Something to keep in mind!
As with any financial decision, there is risk involved with passive income. How much time and effort will be necessary to achieve the results you want? What are the tools and resources you need to create, for instance, a new app? Will the income you expect to generate help you reach your overall lifestyle goal? I’m a planner, so I do suggest creating a plan that tells you what you are working for and what you want to ultimately achieve. Some examples of financial goals to get your mind turning include building your emergency fund, pay for next year’s vacation, or simply a little extra to treat yourself!
As you explore passive income ideas…
- Talk with others who have done what you want to do. There is nothing like networking with fellow side hustlers who have done it, are going through it, or want to learn to do it successfully.
- Carve out the time to give yourself the opportunity to explore the new idea. Most things don’t happen overnight, so allow yourself time.
- Set the goal. What impact do you want to have? How much do you want to make? Do you ultimately want to replace your primary source of income?
- Talk with an objective resource to review your financial goals and plans. Involve a financial planner, a person who is a fiduciary and works in your best interest. A planner may uncover potential pitfalls and add a few safety measures to help protect you as you take on the risk of a new venture.
In closing, if you are serious about making passive income, the most important thing is to start!
Kelly Luethje, CFP®, is Founder of Willow Planning Group, LLC. She provides financial education and guidance to help you live life on your terms. Kelly can usually be found on a mountain or by a lake working virtually with clients across the country across the country.