How to generate passive income

Goodness! It has been three weeks since I last blogged. I was kept busy by a number of things. Anyway… I was talking about how to create passive income.

How do you create passive income? I mentioned writing books or producing an album and earning a royalty from your work as a means of creating passive income. But let’s face it – not all of us are John Grisham or Britney Spears or Shakira. So what alternatives do we have?

There is one form of investment that has stood the test of time as far as generating passive income is concerned. This investment has been used for centuries and produces returns without fail (when done correctly, of course). What is it? Real estate. The idea is quite simple. Search for a property in a strategic location (e.g. near the city center, within easy access to the city, walking distance to the LRT/tube station etc), buy it, find a tenant and you earn passive income every month. Look at any of the super rich, and rest assured that real estate is one of their investments. Does the name Donald Trump ring a bell?

What else can we do to create passive income? Build a business. How do we build a business? We build a system. I can almost hear you think… what on earth is she talking about? Here’s an example of one of the most successful systems in the world.

Ever heard of the name McDonald? Yes.. the fast food chain that sells burgers. What the founder of McDonald, Ray Kroc, did was build a system. He created a system that trains people to cook burgers, serve and sell them to the customers. Walk into any McDonald outlets and you’ll see the same menu and the burgers taste the same. Why? Because there is a system in place to train people to cook the burgers according to a certain standard and serve the customers.

This system is important because it allows the business to expand without Ray Kroc cooking all the burgers and serving everyone who walk into a McDonald outlet.

When you have a system that is efficient and effective, you needn’t be there 24/7 to run your business. You could be vacationing in the Bahamas or Hawaii and your business is still generating passive income for you.

But I don’t know anything about building a system and a business, I hear you moan. That was exactly how I felt. But you know what… don’t let that be a stumbling block. More on that later.

Why is passive income important?

So why is passive income important? When we work for a salary, what we're really doing is we're trading time for money. Therefore, if we want to make more money, we have to spend more hours working. The problem with this is that since there is a limited number of hours a day, there is a limit to how much money we can earn by trading time for money. There are only 24 hours a day, and nobody works 24 hours a day. Give it a try and see how long you'll last.

The most important concept of passive income is that you only do the work once and it generates a continuous stream of income. Want an example?

Think of your favourite singer. S/he records his/her album once but as long as the CD sells, s/he will earn a royalty. Do the work once and enjoy a continuous stream of income. Do you know that Elvis Presley earns more now that he's dead than when he was alive?

Novelists like John Grisham (BTW, not a favourite but his name just pops up in my mind), for example, writes his novel once. As long as people buys his novels, he earns a royalty. His novels are sold worldwide. Just imagine how much money the guy's making.

"But I can't sing, and I can't write a novel... how am I going to create passive income?", I hear you protest. Aaaah... stay tune for the answer. ;-)