My Honest Advice on Building Passive Income
Did you know that many people dream of achieving financial freedom through passive income, yet only a small percentage actually succeed? In this post, I’ll share insights from a recent conversation with a friend about the realities of building passive income streams.
What Is Passive Income?
Passive income is often misunderstood. When people talk about wanting passive income, they usually mean they want to earn money without constantly trading their time for it. It’s not about doing nothing; it’s about creating income that is decoupled from your daily efforts.
For instance, I published a book titled Feel-Good Productivity, which now generates royalties without me having to actively sell it every day. I put in the hard work upfront, and now it pays off over time.
Why Do You Want Passive Income?
During my holiday with friends, one of them, whom we’ll call Harry, expressed a desire to build passive income. After some discussion, it became clear that his motivation boiled down to one word: freedom. Harry enjoys his job as a lawyer but craves the flexibility to pursue his passions on his own terms.
He shared that if he could magically generate £10,000 a month in passive income, he would leave his job and explore other interests, like traveling and writing. This desire for freedom is a common theme among those seeking passive income.
Passive Income Through Investments
Investing is one of the most traditional ways to generate passive income. For example, Harry could contribute to a savings account or invest in the stock market. If he invested in an index fund like the S&P 500, he could expect a return of about 7% annually.
However, to achieve his goal of £10,000 a month in passive income, he would need a substantial investment. At a 4% withdrawal rate, Harry would require approximately £3 million in investments to generate that income. This path is often a long and slow journey, requiring years of disciplined saving and investing.
Passive Income Through Building a Business
While investing is one route, building your own business can also lead to passive income, albeit with more risk. This involves creating a product or service that generates revenue without your constant involvement.
For Harry, transitioning from being a crew member on someone else’s ship (his law firm) to captaining his own ship (his business) could be a game-changer. However, this shift comes with its own set of challenges, including the need for knowledge, skills, and the ability to market oneself effectively.
Finding the Right Idea
One of the biggest hurdles for aspiring entrepreneurs is finding the right business idea. During our conversation, we brainstormed what Harry enjoys, what he’s good at, and what could be useful to others.
We identified that Harry has a knack for emotional intelligence, a skill that many lawyers lack. This realization led us to explore the potential for Harry to create workshops or courses focused on emotional intelligence for professionals, particularly men.
The Truth About Passive Income
The journey to passive income is not a straight path. Harry initially took steps to start writing about emotional intelligence but struggled to maintain consistency. This is a common issue; many people start strong but falter when immediate results don’t materialize.
Creating passive income often requires a long-term commitment. It’s about building assets—whether that’s content, capital, or code—that generate value over time. The key is to stay disciplined and find ways to enjoy the process, even when the results are slow to come.
Actionable Takeaway: Start small and take consistent steps toward your passive income goals, whether that’s through investments or building a business.
What’s your biggest barrier to starting your journey toward passive income? Share your thoughts in the comments!