If you’re just getting started with passive income, it’s easy to find yourself getting bogged down in all the little details: should you update your blog two or three times per week? Which platforms should you use to market your e-book? Is it better to have a third party handle your investments, or should you manage your portfolio yourself?
While all of these questions deserve careful consideration, it’s important not to focus on them too closely early in the process. Putting the cart before the horse is easy—and tempting—to do when you’re initially embarking on a passive income strategy, but your chances of success will be much greater if you take time at the beginning to look at the big picture, identify your long-term goals, and build a solid framework for your passive income activities. These tips can help.
Start by saving
The promise of extra money is what leads many people to pursue passive income streams, but what about the money that you already have? Believe it or not, the best way to start earning passive income is to save money that you’re already earning. Some experts refer to this as building a nest egg: the idea is to save a healthy amount of your after-tax income and grow it—without effort—using the power of compound interest.
Identify your strengths
There are many possible ways that you can earn passive income, but how many of these strategies align with what you’re actually good at? When you’re planning your passive income activities, remember that the best passive income ideas are those that take advantage of your natural strengths and passions. A passive income stream that is potentially lucrative, but which doesn’t match your existing skill set is likely to prove more frustrating than rewarding.
Determine your desired income level
Many people embark on their passive income journey without any defined financial goals in mind: their objective is simply to earn more money. While it’s fair to say that everyone who pursues passive income strategies is interested in increasing their income, it’s equally true that the amount of money that makes people happy can vary. There’s no need to set up a passive income strategy based on how much you have earned or even how much you could potentially earn. Instead, take the time to determine the income level that’s right for you. Think back over the different levels of income you’ve had in your life so far: how did each one match up with your life goals at the time? What goals have you not yet pursued because you did not have sufficient income?
Create a financial plan
Once you’ve spent some time thinking about your desired income level, the next step is to develop a plan that will help you achieve it. You’ve probably heard the saying that failing to prepare is the same thing as preparing to fail, and this is particularly true when it comes to understanding how your passive income streams will feed into and support your broader financial goals. Building a financial plan—for example, deciding how much you want to save or invest each month for a specific length of time—can help you to identify the point at which you’ve achieved success.
Think of passive income as a game
The best time to get started with passive income is when the stakes are relatively low: that is, when you are making active income and are not dependent on your passive income streams to support your basic needs. Even if you are comfortable with a significant level of risk when it comes to your money, treating passive income as a game rather than as an essential undertaking will help to ensure that you have the ability to reset and start from the beginning again if things don’t go as planned.
Remember that everything is relative
Some passive income streams seem like a great way to earn a lot of money, until you factor in all the time it will take to get them established, let alone make them profitable. Likewise, the returns on other passive income streams might seem negligible, until you realize that virtually no effort on your part is required to keep that small amount of money coming in. When you’re getting started with passive income, don’t look at your different options in isolation. It’s more useful to compare and contrast different possibilities to get a true sense of your likely return on investment.
Commit to getting started
The first step to successfully earning passive income is simply to get started. Starting a new endeavor of any kind is always a challenge, and passive income is no exception. But remember that without action, no amount of planning will get you to a place where you’re benefitting from passive income, so be sure your preparation includes a firm commitment to getting started, such as setting a date to launch a passive income stream or bringing in a friend or colleague to provide you with some extra motivation.