What is your favorite way to make money? Obviously, there are many ways to make money. You can work for a company or have your own business. You can earn money from salary, dividend, commission, bonus, and many others.

My favorite way is to earn passive income. I’m sure this is not new to you. I’ve heard about it for years but only recently did I begin to understand its nature. I’m not saying that this is the best way or that everyone should do this. This is just the way I like most.

The main reason I love passive income is freedom. With passive income, I don’t need to be actively involved to make money. I do need to work hard to build the system in the beginning, but once it works I can leave it alone and the system will continue earning me money. All I need to do is checking it every now and then to make sure that nothing goes wrong. I can improve the system if I want to, but that’s optional. I can spend my time on a hobby or a new project.

Differences Between Active and Passive Income

To better understand the nature of passive income, here are some differences between active income (income that requires your active participation) and passive income:

  • With active income, you can quickly get full-time income. For example, if you receive monthly paycheck then you will get full-time income within one month. With passive income, it may take a long time before you get it.
  • With active income, when you stop working your income drops to zero or near zero. When you work you maintain your income level or slightly increase it. With passive income, when you stop working your income stays at the same level. When you work, you increase your income level.

From these two differences, you can see that building passive income is long and difficult. But once you make it, you will get the big reward of financial freedom.

Steps to Build Passive Income

From the characteristics above, here are the steps you should follow to build passive income:

1. Build a side business. Since it takes a long time to reach full-time level with passive income, don’t leave your day job. The active income from your day job will cover your expenses. At the same time, you should start building your passive income through a side business. Start early because it will take time. These passive income resources might give you some ideas.

2. Focus. It’s important that you focus on just one business and make it successful. Don’t be all over the place. There’s a price to pay for something to be successful and only with focus can you pay the price before you burn out.

3. Leave your day job. Once your passive income reaches full-time level, you can leave your day job. This is where you start enjoying your financial freedom.

4. Diversify. Now that you have more time, you need to diversify your sources of passive income. Work on new income sources. This way when something goes wrong with one source you still have other sources to cover you. This also is a good way to increase your income over time.

Photo by schoschie