Every week I spend time reviewing older posts to ensure they are updated with the most pertinent information possible. Keeping posts fresh and useful is one of the many duties of a professional blogger. Posts that I wrote five years ago are still getting tens of thousands of visitors a month because like a bonzai tree, they are carefully maintained. There’s always a balance between spending time writing new posts and optimizing existing posts that are already doing well in search. With enough care, you too might one day create a small empire!
One post that I reviewed recently was Ranking The Best Passive Income Streams. This post discusses all the most popular passive income streams and ranks them by Risk, Return, Feasibility, Liquidity, and Activity. There’s no more thorough post on the web about this topic. The best passive income streams are Creating Your Own Product and Dividend Investing.
What I love about Creating Your Own Product is that you don’t have to be rich to create. You just need creativity and drive! With Dividend Investing, you need capital. What’s more democratic than allowing a poor person and a rich person do the same thing? It’s so great we have public libraries that provide free internet access and all the reading material you could ever want.
THE GREAT VALUE OF PASSIVE INCOME
Everything starts from nothing. Thankfully, most of us have received years of free education that exposed us to many different interesting subjects. My subject of interest happens to be figuring out ways to make money to lead a freer lifestyle. What’s yours?
In the summer of 2012, I published a 100-page book called How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye. The book came hot off the heels of negotiating my own severance package after 11 years of working at the same company. It was a no-brainer to realize that having a longer financial runway after leaving a job would help reduce anxiety and maximize search time for the next great thing. I just had to write about it. If you quit you don’t get a severance package, you lose your COBRA health insurance, forfeit all deferred compensation, and are ineligible for unemployment benefits.
Within a year of releasing the book on Financial Samurai, it started generating about $500 – $1,000 a month worth of passive income. Not huge, but better than a poke in the eye. Ironically, the biggest value the book provided was a permanent step up in traffic to my website because it was pirated so much! Those who found the book interesting clicked the links within my book to see what else I’d written about. Although I wasn’t able to capture all the direct revenue from the book, I was able to capture more traffic, which is why having your own website is important in this day and age.
After three years of steady $1,000 – $1,500 a month in sales, I finally decided to update the book in 2016 with a 2nd edition. I had received so many personal e-mails about successful layoff engineer stories I just had to share them in the latest edition. Just like how I update old posts, I also updated the book with the latest labor laws and severance negotiation strategies available.
Creating A Safety Net
Since releasing the 2nd edition, revenue from the book has jumped to roughly $2,500 a month. Part of the jump is due to a price increase. Another reason is increased layoff anxiety as the stock market had its worst start of the year in the history of the S&P 500. Anxiety is still running high as more and more people from the energy, finance, and startup industries are getting laid off.
What started as a simple desire to share the mantra, “never quit, get laid,” with no real focus on revenue generation, has turned into a passive income stream with meaningful revenue. $2,500 a month = $30,000 a year, enough money to survive a spartan lifestyle in SF, or an average lifestyle in the Midwest. Having this income stream gives me the confidence to try new things. It’s this confidence that enables me and others with a similar safety net to keep on going!
Some people like Bill Gates III from Microsoft and Evan Spiegel from Snapchat were ALREADY wealthy before they became billionaires. They didn’t need to get full-time jobs right out of school. Bill didn’t even need to finish college because he already had a huge safety net in place! When you know that if you fail, the worst that can happen is convalesce at your family’s summer beach chalet, you can take incredible risk for potentially tremendous reward.
You and I need to create our own safety nets for financial freedom. Every safety net we build interlinks. One day,we’ll each have our own massive support system which will propel us forward to help other people.
CALCULATING THE VALUE OF PASSIVE INCOME
Telling someone you make $30,000 a year from a book isn’t impressive. I certainly don’t recommend it as a pickup line. But that’s because most people don’t think like owners or investors. They think like zombie consumers!
As an investor, how much would you pay for an asset that generates $30,000 a year in passive income and has little risk of going away? The answer depends on the current risk-free rate of return (10-year bond yield), the dividend yield of the S&P 500 (~2.5%), the historical rate of return for the stock market (~8%), and the viability of the product. See the chart below.
* Based on the current 2% risk free rate of return, a $30,000 income stream is worth $1,500,000 if the product is also considered risk free.
* Based on a traditional 4% retirement withdrawal rate, you could have a portfolio of $750,000 whose principal would never be touched if you took out $2,500 a month for the rest of your life.
* Based on an estimated 8% historical return on the S&P 500, you could have an after-tax investment portfolio of $375,000 that grows by $30,000 a year on average.
* Based on a 10% rate of return, you could grow a $50B+ empire like Bernie Madoff did and become a billionaire by starting off with $300,000 in capital.
It’s always good to look at an income stream, passive or not, in the context of how much capital you would have to commit to generate the same return, and what type of return the capital could generate. If we head into a deflationary environment where the 10-year bond yield falls to just 1% as people rush to buy bonds and make 1% rather than lose 20% in the stock market, the value of a steady $30,000 income stream rises to $3,000,000!
THINK LIKE AN OWNER TO BUILD YOUR WEALTH
Owners build things. And when they build something that works, they keep on building until it doesn’t. I’m but a small fish in a great sea of builders. But thanks to the internet and technology, being a small fish is all you need to grow a tremendous amount of wealth. My only regret about Financial Samurai is not starting it three years sooner when I first thought of the idea.
Get rid of that defeatist mentality where you don’t believe you can create anything of value. I’m sure there’s something you experienced where you found a solution to a problem that made your life better. Chances are high that other people will find your solution beneficial as well.
My book on negotiating a severance package is a niche product about a topic that is probably counter intuitive. Yet it’s now out there in the world helping people in difficult situations. Now it’s time for me to write a new book in a different niche because I’ve been inspired to keep leveraging my platform to create more products. Yes, it will probably take 3-6 months of writing and editing. But when my capital cost is near zero, the only excuse I have for not publishing a new book on my growing platform is laziness.
Readers, do you recognize the value of your various passive income streams? What is preventing more people from creating something that can be sold over the internet given the low startup costs? Is it a lack of belief? Or perhaps a lack of creativity? Or is it a lack of desire? For my next book, what topic should I pursue? I just published a step-by-step tutorial on how to start your own blog if interested.