Hopefully you know what an emergency fund is and what it does for you. If not, let’s do a quick refresher to bring you up to speed. Then we’ll talk about ways to put money away that don’t require trading your work for a paycheck.
Life isn’t always smooth. Sometimes things go wrong. People get seriously ill, or their car breaks down, or they lose their job. Suddenly they need money. An emergency fund is money set aside for those times when things go wrong.
Financial advisers’ opinions vary, but anywhere from 3 months of income (or expenses) to a year’s worth should be set aside to make sure you can make it through when times are tough. As you can imagine, it’s pretty tough to put that much money away. That’s where the trick of passive income helps.
What if money just showed up? You didn’t work an hour and get paid for an hour. You didn’t sell something you had. A check just showed up. Crazy, right? Well, it is a little crazy, and a better picture than a check showing up is a little slot that drops a penny every minute or two. Passive income is more like that, small amounts coming in slowly.
The trick is to have several of these going at once, so the total is enough to make a difference. How does it happen? You create a situation where, with minimal work, you still earn money. Really, this isn’t just a fantasy. It’s just something most people don’t think of. You’ll see as you read these examples.
A very traditional way of making a passive income is to earn a royalty payment on some work you have done. Big examples are writers and songwriters. Book publishers pay the writer a royalty every time a book they wrote sells. It’s actually a bit more complicated than that, but that’s the idea, you write a book and a lot of copies get made. You make money each time a copy is sold. Songwriters get a royalty for using their songs. If a band records the song, or a movie uses it, the writer gets paid each time someone purchases the recording or movie.
The newest way to make this work is writing eBooks. Find a topic you are expert in or are passionate about. Write a book explaining it or telling people how to apply it to their lives. Get it formatted as an eBooks and sell it, either by setting up your own domain and online store, or using companies like Amazon to sell it for you. Every time the book sells, you make some money. You don’t have to write the book again, you don’t have to print a new copy, you don’t have to ship the book to the buyer. Ebooks are delivered electronically and the only expenses are the cost of keeping your site up and running.
Another online passive income stream is selling through an online store. Connecting with an online supplier who will drop ship goods directly to a purchaser allows you to sell goods without having to inventory them. A customer orders it on your site, you automatically communicate that to your supplier, who sends the product.
Putting ads on your site can earn some income, although there are signs that’s decreasing. This isn’t totally passive, as you need to keep updating your site with new content, such as a blog, to keep people coming to it. But if you are already maintaining a blog, this is a source of additional income that costs no extra work.
Affiliate marketing takes a bit more work, but can bring in more money. This is specifically mentioning products from other companies and linking to them. If visitors to your site follow that link and purchase the product, you get a reward from the company for finding them business. The work required: inserting the reference in your site’s new content.
Creating online courses to teach people things you know can start a passive income stream. Once you’ve made the course, each time someone buys it, you make money with no extra work. This turns your expertise directly into income. Although, it does help if you are a good teacher and pick topics people are interested in.
There are a number of ways to make a small passive income that don’t require a setting up your own business. A number of companies pay for you to have an app on your phone. Some show you an ad when you turn on the screen, others pay for surveys, photos, or reviews.
How about turning your car into a billboard? Companies will pay you to put an advertisement on your car. It might take a little research, and trial and error, to find the ones that fit your lifestyle, but getting paid to do what you were already doing? That sounds pretty good.
Now to tie this back to your emergency fund. Don’t use your new passive income to support new expenses, put it into your emergency fund to build up a reserve. You aren’t putting in lots of hours to make this money, so it may feel easier to have it go straight into another account to save for a rainy day. If you can, you might even create a big enough revenue stream to have your passive income become your emergency fund. Lost your job? Those dozen ebooks you wrote, along with your affiliate marketing on your blog, brings in enough to meet your monthly expenses. Now wouldn’t that feel safe?