Jul 23

How to Generate Passive Income

You can become a millionaire.

You can become a millionaire with passive income.

You may be surprised to learn that one of the major differences between self-made millionaires and non-millionaires is: self-made millionaires know how to generate passive income. Self-made millionaires have learned the that the secret to building lifetime wealth is in learning how to generate passive income through leverage.

In an earlier post, (Read it here) I explained the three types of income that are actually labels that the IRS puts on income for the purpose of taxation. Read on and you will see I have a slightly different view about what “passive income” is.

Active Income: YOU AT WORK  for an employer or actively employed in your own business. Active income could include the freelance work you do for online companies like Fiverr or RentaCoder or the self-employment work you do as a consultant or coach.  Basically anything you do in a direct exchange of your time for dollars is what the IRS considers Active Income.

Portfolio Income: YOUR MONEY AT WORK invested for interest, income and/or capital gains.  The IRS says your investment portfolio could include rental real estate properties, stocks, bonds, mutual funds or limited partnerships.

Passive Income: YOUR LEVERAGED IDEA AT WORK for you through the initial work you do to build a money-making asset like a website, an eBook, a digital product, an affiliate portfolio, a franchise business, or a business system can be turned into what the IRS says is passive income. The IRS says passive income also includes royalties received from certain partnerships, investment in oil wells as well as royalty income from intellectual property rights like books, patents, songs and musical productions.

Smart Passive Income

Passive income is a sure way to wealth if you are smart about it.  But the term “passive income” came from how the IRS defines income. In reality, if you talk to any self-made millionaire they are NOT PASSIVE when it comes to their income. In fact, they are actively involved every day in their income production.So what do I mean by “smart passive income”?

Smart passive income is LEVERAGED INCOME which is anything you can do once or once in awhile and get paid for multiple times without massive daily effort to maintain.  Smart passive income could include producing and promoting an eBook or a training program on your website that operates 24/7.

Basically, creating any kind of “How to” program that can be marketing on the internet or on Cable TV Infomercials or in bookstores could qualify for leveraged or smart passive income. Spending a few hours each week monitoring your business and investment portfolios could also qualify for leveraged or smart passive income.

Developing digital products that can be marketed on websites are examples of smart passive or leveraged income. Digital products include videos, audio files, recorded interviews, mobile device applications and pod casts. Many digital products are marketed through eCommerce sites like Amazon, Click Bank and Commission Junction.

Leveraged income could come from the work you put into producing and promoting your business system through a digital marketing system or a franchised system, either virtual or brick and mortar like Subway, Papa Johns or Jiffy Lube.

Understanding how to leverage your income along with how to leverage your time is how the rich get rich!

How to Leverage Your IncomeRed Dollar Sign

You can leverage your income in one of four ways:

  • Become an investor in rental real estate and leverage your time by hiring property mangers to collect rents and manage your properties

  • Develop your own products and leverage your marketing efforts through digital market aggregators like Amazon, ShareaSale, ClickBank or Ebay

  • Leverage the time it takes you to develop a product by becoming an affiliate for multiple product and service providers

  • Develop a business system and market it through a franchise or other distribution method.

If you are serious about building online passive or leveraged income, the first thing you need is a website. Think of your website as a launching pad for your content. Whether you are a property owner, a merchant or a promoter of affiliate products you must have a website.(See my article about 12 Must Have Website Features HERE)

Your website is in essence your online store.  It is a framework for housing the information you provide to the visitors of your site.

Building a Leveraged Income Website

The content on your website is organized into Pages and Posts both of which can be used to promote products and services. The products and services you promote could be your own or they could be the products and services of others.

One way to build a passive income stream is to write themed articles and blogs or dedicate pages to the review and promotion of a product or service and then get paid a commission from a sponsor.  This is in essence, Affiliate Marketing.

As an Affiliate, you do not own the rights to the product or service but you do get paid to promote it.  Most major companies offer affiliate programs. Commissions vary from vendor to vendor. Some affiliate programs can pay up to 70% commission.

When choosing, do not be blind sided by the size of the commission. To be successful as an online business marketer you must become an expert in the niche of customers you serve and seek to match affiliates with the needs of your audience.

How to Profit from Online Passive Income

Remember, your purpose for having your own online business is to sell products and/or services for a profit. When you start out, you  CANNOT BE PASSIVE and expect to make money. As you are getting started you may put in a lot of long hours in building your online business.

Keep in mind, having your own online web-based business is not a sure guarantee for profit, but if you build your online business with the right profit model you can leverage your efforts to make money.

In order to profit from an online business venture you need to think about ways to diversify your income streams into profit centers. In other words, never put all your eggs into one basket.

As you build your online business think about selling the following:

-1- Your own service–coaching, consulting, health or beauty service, professional service, etc.

-2- An eCommerce store where you drop ship products from wholesalers

-3- Affiliate products/services

-4- Ad Space

-5- Your own products–anything tangible or intangible that you create

-6- Business systems, software, applications

-7- Create a product and start your own affiliate program


Thanks for reading this post. Please feel free to comment in the box below and by all means, if you have found this post to be helpful to you in thinking about how to generate passive income, please share it with your friends and family.

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2 pings

  1. 4 Steps to Making Passive Income Online | The 24 Hour Millionaire Wealth Coach

    […] a look at my post on “How to Generate Passive income” and you will learn that in my view a better term for aspiring entrepreneurs like you is […]

  2. Myths About Financial Freedom | The 24 Hour Millionaire Wealth Coach

    […] used “passive income” in my definition and if you read my posts about passive income you know that I think a better word for passive income is “leveraged income”. I used […]

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