What Is A Passive Income Stream and How to Generate One

 

*Updated from an earlier post published in 2016

There’s a lot of chatter in the online space about passive income, the benefits, and the freedom it creates. But, what is a passive income stream? Moreover, how can you create one or more streams of passive income?

The conversations all make passive income sound like the Holy Grail. But could it really be that simple to make money without doing any work? I was skeptical but intrigued by the concept and had to learn more.

The research I performed and the answers I uncovered were a driving force behind the creation of my website. After reading this post, you may feel compelled to make a similar decision.

Are you interested?

Let’s explore this idea of generating passive income a little further, shall we?

What is Passive Income?

If you “Google” the term passive income, you will encounter definitions of varying complexity. My favorite definition is a simple one courtesy of Wikipedia.

Passive income is an income received on a regular basis, with little effort required to maintain it.

Sounds good, right? But please notice the emphasis (added) on the word maintain. Passive income (sometimes called residual, or recurring income) is income that continues to be generated after the initial effort has been expended.

To further clarify, let’s talk about examples of active income and passive income that are very familiar to most of us.

Active Income vs. Passive Income

Salary or wage income is a classic example of active income. We perform services and receive compensation for those services.  As soon as we stop performing services, wages cease. Contrast wage income with pension income.

Many of my retiree readers may be receiving pension income which is a form of passive income. Once you’ve met the qualifications, you continue to receive monthly pension income without the need to provide further services.

Is receipt of pension income an effortless process? Hardly.  🙂   Assuming you were fortunate enough to work for a company that offered a pension plan, receipt of benefits typically requires a minimum of 10 years of service in addition to meeting age requirements.

Employees expend effort up front and then continue to receive a recurring income stream following termination of employment.

My point?

Rarely is passive income generation an entirely effortless process. I know you’ve read otherwise, but let me burst that bubble right now. It’s not all that easy! And yet, when the effort ends or at least slows way down, there is great satisfaction in the continuing cash flow benefits.

So let’s talk about a real opportunity to create that passive income stream that can eventually free up more of your time to enjoy a rewarding retirement. If you’re ready to make the most of your retirement years, then you’re in the right place!

How to Generate a Passive Income Online

Let’s face it; we’re living in an online era!

If we embrace that knowledge, we can use it to our advantage. Today, creating a niche website is one of the best ways to build a passive income stream. You are reading this article on a niche website.

Before the advent of the Internet, more traditional ways of building passive income were limited to investing in stocks and bonds to generate dividends and interest. Or, you might purchase real estate and convert it to rental property.

Obviously, both of those options still exist today. The stumbling block is that they’re beyond the means of many people. Whereas, a website has minimal to no barriers to entry.  All the resources I need for my site cost me slightly less than $1/day.

What is a Niche?

A niche is nothing more exotic than a group of people seeking specific information and related products or services. My niche is retirees, or those preparing for retirement, who are seeking information about supplementing retirement income online.

My “product” is my content. The overarching goal is to help my niche or target audience to find answers to their questions. I uncover the questions my prospective audience is voicing and then I blog about those precise topics.

With 3 billion + daily internet users to choose from, your niche possibilities are endless. Internet users are searching for everything under the sun. Pick something you love and go with it!

If there’s a hobby, leisure pursuit,  or skill of any kind that you just can’t shut up about, you might be a blogger! 🙂

Overview of  the Income Generation Process

Once again, passive income generation almost always requires work up front to set the process in motion. That is most assuredly true of a niche website. A niche website is not a turn-key, get-rich-quick, make money tomorrow proposition.

You must invest significant time and effort to get this business off the ground. That said, generating passive income eventually is a very achievable goal with a minimal cash investment. It is indeed possible for an average person to create enough side income to significantly improve their cash flow and lifestyle.

I would plan to invest a minimum of 10 hours per week during the build-out phase (steps 1-5 below). Spending more than 10 hours will generally achieve faster results.

If I haven’t scared you off yet, here’s how it all works:

(1)  Choose an Interest or Niche

You should absolutely follow your passions with this one. But, if you’re still struggling with identifying a direction, read this excellent blog for inspiration on selecting a niche.

(2)  Build a Website

A website is a non-negotiable element of the process. Your website is your means of communication with your niche. Your readers will span the globe. You do not have to be a computer geek to accomplish this. Trust me; I’m far from it! See my Build a Website page to view a video or create a website for free.

(3)  Fill Your Website With Relevant Content

Content is the key ingredient to your success. Relevant content is helpful and answers the questions that are uppermost in the minds of your readers.

How will you know what questions your readers have?

By using appropriate tools (many are free) to perform keyword research. You may also want to review these content writing tips.

(4)  Gradually Increase the Traffic to Your Site

Niche websites attract traffic primarily through search engine rankings and social media. Consistently craft new content, designed around keywords, paying close attention to search engine optimization techniques and be patient.

Google is looking for meatier sites with substance. Plan on posting at least 20 pages or posts to start seeing your content appear in search engine results. I also regularly post my content to my Twitter account, my Pinterest Board and various Facebook Groups with positive results.

Did I mention being patient?  🙂 You might also be interested in this wikiHow article for some creative ways to increase traffic.

(5)  Monetize Your Site and Earn Revenue

As your traffic increases, there are many ways to earn revenue from your site. If your ultimate goal is to earn passive income, you will probably want to steer clear of selling your own products.

You want automated techniques that require minimal interaction on your part. Three good possibilities would be:

• promoting the products of others as an affiliate marketer
• using pay-per-click (PPC) ads through Google AdSense, or
• writing an e-book and selling it through your site.

In fact, the bullet point options above are not mutually exclusive and many webmasters employ all three techniques. Creating a passive income stream is not a short-term strategy.  Having multiple sources of revenue that start out as a trickle and then flow together is not a bad idea and it’s a common longer-term approach.

(6)  The Passive Income Stage

If you diligently follow the steps above, you will eventually arrive at the stage where you are generating recurring income from articles written several months or even years in the past. Your website will generate revenue while you sleep, play and vacation.

Remember, the Internet operates 24/7.

How Long Will That Take, You Ask?

This is a question I’m asked all the time and I struggle with a good response because the answer differs widely from individual to individual. The principal determinants will be how hard you are willing to work up front and the quality of the content you publish.

Conventional wisdom says be prepared to spend a year to develop a steady income stream. For some website owners, it happens sooner. But it also may take longer. Naturally, the amount of revenue you want to generate will be a significant factor also.

Depending on the nature of your chosen niche, you may always want to post content at least once a week. And yet, I’m familiar with sites that haven’t been updated in months, beyond comment responses, and they continue to rank highly and produce a regular income. You will want to monitor your site’s performance and respond accordingly.

My #1 Recommendation

Does the prospect of building a passive income stream from a niche website excite you?  If so, I strongly recommend you consider joining the same online organization that I participate in, called Wealthy Affiliate.

Wealthy Affiliate is a legitimate, highly-rated, online business training center that has all of the training and tools you need to thoroughly explore the option of creating a niche website. They offer a 100% free Starter Membership that you can activate with nothing but an email address.

You have absolutely nothing to lose and plenty of knowledge to gain. Go to my Wealthy Affiliate review page to see everything included in a WA Membership and begin your online adventure today.

To Sum Up

I sincerely hope today’s post was helpful in adding some clarity around the frequently posed question, what is a passive income stream? From personal experience, I know that it’s not always easy to find an honest answer to this question because there are so many purveyors of “shiny object syndrome” that inhabit the online environment.

I threw out a suggested path for how to generate a passive income online that includes realistic expectations and a risk-free avenue for getting even more background and clarification. So, the ball’s now in your court, and I wish you success!

Join the Conversation

As always, please reach out to me with any questions by leaving a comment below.  I would also love to hear about any experiences you’ve had in creating passive income with a niche website.

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