It’s easy to understand why people like the idea of earning passive income. Making money on the side without doing much work is appealing for obvious reasons.
It’s also a lot easier than you may realize. As this blog has pointed out, there are many different ways to earn passive income at any stage in life. You can almost certainly identify at least one that sounds worth pursuing.
That said, choosing and committing to a passive income strategy is much easier when you take the time to ask yourself a few basic, but essential questions first. The following are particularly worth asking. They’ll help you identify how you want to earn a little bit (or a lot) of extra money, and they’ll help you stick to your goals.
How much risk do I want to take?
The saying “You have to spend money to make money” certainly applies to passive income strategies. Whether you’re publishing an e-book or investing in the stock market, you typically need to put up some money upfront before you see any returns.
Of course, different passive income strategies require different investments, and they involve different degrees of risk. Some strategies involve little risk but yield relatively small amounts of money. Others may be riskier, but could potentially yield much more in the long run.
There’s no “right” answer when deciding how much risk you’re willing to take. Everyone has his or her own feelings regarding this topic. However, you do need to ask yourself this question before adopting a passive income strategy. You don’t want to take a risk you shouldn’t have, simply because you didn’t consider the potential drawbacks at first.
How much work am I willing to put in?
Very few passive income strategies are actually entirely passive. Just as you need to invest money in order to earn money, so too do you need to put in some work before you can start earning extra money with little effort.
People often abandon their passive income strategies early because they didn’t account for the amount of work a given strategy actually demands when they chose to pursue it. Don’t prevent yourself from making money by failing to honestly ask yourself just how much effort you’re willing to devote to earning passive income.
Research the type of work you’ll have to do for a given strategy to be successful. If you don’t think you’ll genuinely be willing to put in the necessary work, it’s best to consider doing something else.
Will this work?
It’s a simple question, but one people overlook too often.
Many passive income strategies involve offering some type of product to customers. This can be a book, online course, T-shirt, or anything else you can sell online after you create it.
Ask yourself if the product you’re thinking about creating will actually appeal to anyone before deciding to sell it. Keep in mind that vanity projects typically do not make good passive income strategies—instead, you need to think about your potential customers. Who are they? What do they need? What problem does your product solve for them? What are they willing to pay for your solution?
For example, an e-book of your poetry might appeal to your family and friends, but unless you’re an accomplished or known poet, odds are good you’ll have a hard time convincing others to buy it. On the other hand, a book explaining how to write poetry will be much more likely to succeed—plenty of people are interested in creative writing, including poetry, and may be curious to learn strategies to help them conquer writers’ block, use metaphors more effectively, and so on. However, your e-book won’t offer any worthwhile information if you don’t have the relevant expertise or experience. You need to ensure you’re actually offering real value to people when you decide to sell a product.
Why do I need extra money?
People in need of cash sometimes believe a passive income stream will provide it. The problem is, these strategies typically take time to develop. You shouldn’t rely on a passive income idea to help you pay important bills.
Passive income is money you want. It should never be money you need. For instance, if you’re considering a passive income strategy because you have a bill you’re behind on, it’s better to look into ways to make money that deliver returns sooner and are more likely to work. Maybe that means taking on a side job. Perhaps you’ll have to sell a few belongings. The main point is, asking yourself why you need (or want) extra money will help you be more realistic when considering passive income ideas.
Do I like this idea?
It’s a lot easier to stay committed to a passive income stream when you actually enjoy the type of work it requires. This isn’t always necessary, as some people have the discipline to complete tasks they find boring, but it’s definitely helpful. You’ll be less likely to abandon your plans if you choose a strategy that doesn’t feel like a chore.
Remember to ask yourself all these questions before trying to realize a passive income idea. Once more, it’s absolutely possible to earn extra money on the side, but you’re more likely to succeed in doing so if you consider these essential points first.