The Money Series – Steps to Create Passive Income



I really want to quit my job and start creating some passive income, but I am not sure how to begin. What steps should I take?

I wish I could say creating passive income was easy for me, but it certainly wasn’t as I am still on my way to become financially free. I don’t work a nine-to-five job anymore, but I actually work even harder (minimum 12-hours day) to create my passive income stream. Having said that, I know I am well on my way as long as I stick with the plan.  

What is the plan? The plan is different for everyone. Your plan will be different from mine. It all depends on what your passion is. I know this sounds cliché. But you must know that creating passive income is NOT easy. It is hard work. You must find something that you are absolutely passionate about so you would stick with it when it gets tough.  It will get easier as you grow and become more experienced. That’s how life works. You can’t run before you know how to walk. The same principle applies in creating passive income. It takes time at the beginning. 

What is a Passive Income?

Before I share my experience with you, I want you to be very clear about what passive income means:   

Passive income = an income stream that you receive on a regular basis without your active continuing effort. 

In other words, creating passive income is like building a wood fire. It takes time and effort to build and grow the fire. But once you get the fire going, it will sustain itself and give you the heat without you actively working on it.   Passive income could come from rental properties, book royalties, software royalties, licensing fees, or investments in businesses like oil and gas, etc. 

Change Your Mindset  There is no get rich quick scheme. Anything worthwhile in life takes effort. If it was so easy, everyone would do it. At the beginning, it is easier to get a job. You get paid for the time you spend at work. That is easy. Creating passive income requires education, time, trial and error, work, long hours (did I say that already) and time to think (lots of it).  

When I first started my real estate investment, I went crazy! I bought five homes in one 1031 Exchange transaction. You can buy so much (bigger home on bigger lot) in other states compare to California. I wasn’t paying “enough” attention to cash flow. Yes the rental income does cover the mortgage, but how about the tax, property management fee, insurance, wear and tear, etc. You’ve got to do your homework. I learned it the hard way and ended up having to sell a few of those that were producing negative cash flow.

Sometimes it is easy to get into something, but so much harder to get out.  

Educate Yourself  As I said earlier, there is no get rich quick scheme.  You need to educate yourself and learn how to:

  • Buy positive cash flow rental properties;
  • Write books that people would buy which creates royalty income;
  • Create software that people would buy which creates licensing income;
  • Create websites that people would visit which creates advertising income;
  • Identify positive cash flow oil & gas investment; and
  • Identify positive cash flow businesses to start or invest in.

I started my education with Robert Kiyosaki’s Rich Dad company. I went to a lot of seminars and spent thousands of dollars in educating myself learning various ways to produce income. I am not saying you also need to do the same, but you can only learn so much from books and tapes. My belief is that you need to understand the game from a “seasoned” player before getting into the game.  

Follow the Leader, Don’t Follow the Follower  Don’t get into something because everybody else is doing it. Find your passion so you would stick with it even during bad times. Ask successful people how they did it. Stop asking your friends or neighbors with no experience or knowledge for free advice . Free advice often is the most expensive advice. Find a mentor, ask them how they did it and copy them.  

Set Passive Income Goals  How much do you need to become financially independent?  How much do you need to become financially free? How much do you need each month to sustain your standard of living and life style? Only you can answer these questions for yourself. 

Create Your Passive Income Vehicle  My financial vehicles include residential real estate, commercial real estate, oil and gas, stock, websites and books (in progress). I have the most experience in investing in residential real estate and I think real estate makes a lot of sense because we all need a place to live. In the meantime, I am actively learning to build my website advertising income and future book royalty income.  I love education. I made the choice to do what I do now because I absolutely love it and I will stick with it. 

Create Your Financial Discipline  Poet Robert Frost once said: “The best way out is always through.” Your best way out of the financial rat race is to stick with your passive income plan. Create a routine to review your financial status on a regular basis. Carefully manage your bank accounts. Stop spending future money that you don’t have. 

The road of creating passive income is not for everyone. However, I believe if you are willing to take this step and stick with it, you will get it. 



 
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15 Responses to “The Money Series – Steps to Create Passive Income”

  1. on 07 Aug 2007 at 1:53 pm

    Awesome article. I just did a post on Monday about Passive Income. I went down the idea and example path, but I like your idea of discussing mindset.

    BeachBum

  2. Elena on 09 Aug 2007 at 8:46 am

    Great article! I completely agree that in order to create a sustainable passive income, it has to be something that you are passionate about so that you stick with it even through the tough times.


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