A topic of frequent discussion on this blog has been passive income. That is because passive income is what many successful professionals seek outside their professions. Today I want to talk about parlaying your passive income to build multiple streams of income.
Successful and wealthy doctors, lawyers, accountants and business owners are always looking for ways to make their cash work to grow more cash, but without having to invest much time and effort since they are already very busy in their full time professions.
The beauty of passive income is mostly in getting paid for something you are not actively involved in, or have very limited involvement with. For example, when you buy a rental property and secure a tenant to live in it, you can count on receiving monthly rent checks on autopilot.
You will have to work to find, purchase and maintain the property, as well as spend time at year end for tax compliance, but most of the tasks, if not all, can be outsourced to a third party with very little involvement on your end, if any.
In fact, you can even outsource the management of the property to a property manager for a percentage of the rent collected as payment (this expense is tax deductible and well worth it in my opinion).
One of the most intriguing qualities of earning passive income is that passive income business models mostly tend to be replicable in nature. Once you have established one, you can replicate the process and establish another one.
For example, once you have experienced success with one property acquisition, you can use the positive cash flow from rent and purchase another one. Or once you have one certificate of deposit (CD) in a bank, you can use the interest over time to open another one.
You might be thinking everything is replicable. It sure is. But how long will it take Ford Motor Company to replicate another company of its size? Besides, the average reader of this blog is likely not in a position to (financially) build a Ford Motor Company all by him or herself. Besides, the activity is not passive in nature by any means.
The best way to make a million bucks is to find a way to make a dollar, and then do it a million times over. Such are passive income business models as well in my opinion. You can duplicate your success several times over, building multiple streams of income in the process all while diversifying your risk in any one stream.
Why are multiple streams of income necessary? They are necessary to create stability and certainty of cash flow. Leveraging passive income to generate multiple streams of income ensures that you are always earning passive income, even when some of the streams dry up. It is also a great way to self insure yourself from a job loss or a major financial catastrophy.
Anything can happen after all. Even interest income on a CD or saving account can be washed away if the bank was to go under (FDIC insurance doesn’t require immediate reimbursement of your principal). Establishing multiple streams of income provides additional peace of mind and security.
I’ll throw marketing in as a catalyst ingredient into the equation. You can leverage effective marketing to automate or expedite your quest to building multiple streams of income. So marketers pay attention!
Knowing how to effectively promote a product or service is critical to your success, whether the product or service is yours or someone else’s, hence as an affiliate marketer. It is important to research your niche and study your customer base to determine whether there is a need for what you are offering before you even launch your offering.
This may not apply if you were to invest in municipal bonds, but it applies to other methods such as starting a website and earning passive income through affiliate marketing. Once you know a need exists in the marketplace, you need to position yourself through effective marketing so that your message reaches the customer and they feel your offer is worthwhile for them to spend money on.
You must work on building trust. When you are trusted and seen as a reliable resource who offers a quality product or service, you will benefit tremendously from customer loyalty and word of mouth. You can take advantage of the rapport you have by introducing other products and services as an affiliate.
My wife and I can vouch from personal experience. Because we have consistently provided quality information and have built a relationship with our Dubai Newsletter readers, we have benefited tremendously from our affiliate marketing efforts over the years.
Always remember that your best customer is your existing customer who has already bought from you once. You may even end up with a lifetime customer depending on your offering.
For example, if you are selling vitamins, a perishable product and one that the customer is likely to continue consuming, you may get a customer for life if you can manage to build and maintain a healthy relationship with them. Selling insurance is another example.
The true beauty of earning passive income is that you get paid for activities you are not actively involved in, and many times the income can be residual or recurring in nature. Most passive income business models are easily replicable, so as soon as one starts to make money, you can leverage your earnings and build another stream soon after.
I’ve discussed the parlay effect in my post about value investing in real estate. Although the post is focused on real estate, the underlying concepts can be applied to other business models as well such as establishing niche content websites, selling insurance, or affiliate marketing of products that pay residual commissions.
Because there are no guarantees in life, you always need to plan for contingency. So like anything in life, except for your husband or wife, you need to diversify your income streams 🙂
By replicating the passive income formula over time, you can build multiple streams of income that are diversified. As the streams become more reliable, and the income more stable and predictable, you can benefit from greater personal and financial freedom.
Do you have passive multiple streams of income? Are you planning on establishing some? Please share your thoughts
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