A Realistic Guide To Genuine Passive Income

Having a source of passive income is something that most people aspire towards. The prospect of being able to generate money without having to work for it is hard to turn down. But the concept and relevance of passive income is not understood by everyone. And fewer people understand how to generate it the right way. Therefore in today's blog post I will delve into the right way to understand and build passive income.

Meaningful Passive Income

Simply generating passive income is not sufficient. The goal is to generate meaningful passive income. Most people tend to classify dividends and rental income as passive income. Passive income is any income we receive without having to work for it. So classifying dividends and rent as passive income is right in that sense. But we must also understand how relevant such income is in light of our needs and the effort involved. Let me explain this with an example.

Assume an individual has monthly expenses worth Rs 1 lakh. The person recieves stock dividends worth Rs 5,000. The dividend received is definitely passive income. But the amount of Rs 5,000 is not really meaningful in light of the individual's lifestyle (given monthly expenses of Rs 1 lakh). The investment amount required to generate a dividend worth Rs 5,000 is also likely to be significant. Therefore this amount may not really be relevant.

The Right Kind Of Passive Income

Generating passive income worthy of note requires us to leverage and monetize our skills and competence. An ideal source of passive income would therefore be something that allows us to :

1. Do something we are good at

2. Monetise our skills and competence (the passive income source should be something that has a clear target market willing to pay for it)

3. Scale up the idea and delegate authority

Let's say there is a software engineer who is really good at baking. They can consider setting up a YouTube channel. The channel can feature videos sharing recipes for various baked dishes. Once the channel takes off, the software engineer can consider monetising it. The channel is then likely to gain significant and sustained traction. The engineer can then consider hiring a team to help run the channel. This would allow the engineer to delegate most of the effort involved in running the channel. This would allow the engineer to generate passive income that is sustained and relevant. The absolute amount of passive income generated would also grow over time.

A Reality Check

The description laid out above may make the process of setting up a passive income source look overly easy. But the story is completely different in the real world. All sources of meaningful passive income start out as a side hustle. This means anyone looking to set up a passive income source must continue working their day job during the week. Weekends would mostly be dedicated to building the passive income source. This implies foregoing precious free time on the weekends.

Building the side hustle would require capital and resources of its own. These requirements may last for a few years at least. We must therefore objectively assess whether we have the capacity to stump up what is required during the initial years. There is also no guarantee as to whether our passive income source would take off and achieve scale. This is an inherent risk that comes with the territory of setting up a passive income source. We must be willing and adequately prepared to take that risk. The demands of setting up a passive income source are therefore not capable of being met by everyone.

Steady Growth Lasts, Instant Growth Doesn't

Those willing to put in the hard yards during the first few years will have a reasonable chance of surviving them. At that point the side hustle will begin to grow. This is a very crucial phase in the evolution of the side hustle. Some of us may try to do too much in the quest for growth. We may over allocate capital and resources, take too many risks and/or try to hard sell our side hustle. Doing this may give us instant results and growth in the short term. But we would not be able to sustain this beyond a point. Therefore instant growth, even if achieved, is unlikely to last.

Hard selling our side hustle is particularly dangerous. It may help our side hustle gain traction in the short term. But the traction is likely to be short lived. This is true for two reasons. Hard selling is likely to put off sensible, genuine people who might otherwise have been interested in our side hustle. Those who do buy into a hard sales pitch are very likely to leave if what is delivered does not live up to the pitch.

It is therefore better to under commit and over deliver. Of course our side hustle may not grow instantly. But there would definitely be steady growth. And steady growth is much more likely to last. And lasting growth is what we would have hoped to achieve for our side hustle. We must therefore focus our efforts towards achieving growth that is steady rather than instant.

Steady growth rewards consistency and discipline. The key to steady growth is to figure out something that works reasonably well for us. We must then stick to that plan without trying to overdo things. Exhibiting what our side hustle offers for free would also be of great help. It would earn the awareness, respect and trust of those who may be genuinely interested in learning more about our side hustle. And it is such people who would become our earliest and longest lasting collaborators and/or stakeholders. Disciplined and consistent efforts would set an impregnable foundation for our side hustle. And when the foundation is resilient, growth is assured over a period of time.

Closing Thoughts

Building a genuine source of passive income takes time. It is initially challenging but ultimately rewarding. It requires an almost obsessive degree of consistency and discipline. These qualities are demanded with no prior guarantees of success. But all of us can definitely find at least one idea that can be turned into a genuine source of passive income. And those who commit to the idea of creating genuine passive income for long enough would get to enjoy the benefits for years to come.