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.
Related: Ranking The Best Passive Income Investments
Start your own website and improve your future. Check out my step-by-step tutorial guide on how you can launch a site like mine in under 30 minutes for just $2.95/month. A website legitimizes your business and becomes your online portal. Not a day goes by where I'm not thankful for starting Financial Samurai in 2009. In just 2.5 years, I was able to quit my job and be free. Everyone should leverage the internet to build a brand, build a business, and become untethered from an office to live a life of purpose!
85 thoughts on “Passive Income Is Much More Valuable Than You Realize”
Hey Sam what”s the formula for passive income value?
Basically your annual passive income stream dividend by the risk-free rate of return plus an equity risk premium. Let’s call the denominator 4%.
Now I know why I am poor. I make money the old fashioned way: I *EARN* it.
How did you write your E-book? did you use a specific vendor? what do you recommend for those who are interested in pursuing a similar product approach?
Generating multiple streams of passive income is my main financial goal. Well, retiring at 35 is, though that’s not going to happen (I make in the low $40,000’s at my day job). Right now, I’m working two jobs, investing in dividend growth stocks and P2P lending, working on a blog, and am looking to invest in a mixed use property that I would live in (and perhaps create a niche site about the process as well) as well as start a business. Hopefully all those different income streams, both active and passive, will propel me to my goals of early financial freedom that much faster.
I was one of the lonely few to vote for you to write about how to get into, thrive, and get out of the financial services industry. As a fellow banker (though I’m a retail banker while you were an investment banker), it’s definitely something I would find interesting. I’m looking to make a transition from retail to private banking at the end of the year (I’m looking to get some time in on my new position as the branch’s licensed banker before I go anywhere). If you don’t write about that topic, my second choice would have been about how to create a lifestyle business through a blog. I figure maybe I could take away some information from that for my own blog or my soon-to-be online business.
ARB–Angry Retail Banker
Writing a book or creating a blog is not exactly “passive” income. It’s active income.
That’s not to say it is not a good way to earn income but it’s misleading to put it in the same basket as owning SPY or a 10 yr-note or CD.
Blog income isn’t passive income, which is why online income is not included in my passive income report.
But I’d argue that book income is much closer to CD and dividend interest income than active income.
If you feel mislead, I’m sorry. Do you think I should explicitly write out that nothing just happens without effort? That everything passive must take active energy? I thought that was a given, but maybe not with everybody expecting to get rich without putting into the effort.
I’m afraid you might be missing the overall message of this post. Tell me more about you and your perspective.
You do an excellent job on this blog. Also, I think you do a great service by encouraging people to write books, create blogs, and to create multiple streams of income, both passive and active.
I just don’t think it is fair to compare writing a book and it’s resultant economic stream with a passive investment, such as a CD. If you feel it’s the same, then what about creating a TV show? Album? Movie? To those that are out there and write a book that earn $30k per year continually, I salute you as I know it is difficult and takes a lot of hard work. However, that is not the same as owning property earning $30k per year or a CD earning $30k per year. If you don’t believe that, try selling the royalties and see if anyone will capitalize those earnings at 1-2%, like CDs.
If, anything, my point was that writing a book is a job, which takes skill, talent, and effort, much beyond that needed to buy VTI, bonds, or CDs. Maybe in your mind, it is passive, because you are really good at it. But, I think that’s a stretch as a term. However, you are correct in that I’m probably missing the forest from the trees because it is a great idea.
As far as myself, I am a doctor, healthcare entrepreneur and investor in businesses and real estate.
I really love the whole concept of passive income. Lower taxes, and little if any work required to maintain it. Royalties, real estate, ownership in business, and lending…I just get excited thinking about it all.
My preference is real estate, but I think people need to create multiple streams of income in order to be the best off.
Thanks Sam and Aaron. I am using all the investment vehicles you mentioned — dividend income at long term capital gains tax, muni bonds, and real estate. What I haven’t explored and would love to is to start my own business. This also aligns with my long term goal and my calling, to open a business related to a cause that I care deeply about (while keeping it practical).
Since you both gave that suggestion, how does one get started? Any suggested readings you could recommend? Eventually I’ll figure it out but you can help so much in short circuiting that journey. Many thanks in advance.
I’m 100% a fan of having an online business!
Sam, I have been reading your blog for a few months now, which is a few years after I have started thinking seriously about reaching financial independence in the next 5-10 years. To be sure, I’d like to work forever (if possible) because I find what I do intellectually challenging and fun, but I feel that if I dont “need” the money, I can rid myself of the stress of corporate politics and just do what I do because I like it, and not worry about career progression or rewards etc.
But there are a few catches about my situation that I am sure some of your other readers will relate to, and maybe explain why people don’t invest in generating passive income. I’m writing this because if my reasoning is wrong, I’d like to hear it. Especially if the mid to long term goal is to feel financially independent.
I am 38 and my husband 36, we have 2 kids, and our net joint income is about half a million. We are aggressive savers, but we have consciously decided not to invest in assets that generate any current income, because we’ll have to pay 50% marginal tax (we live in California) on that additional income anyway. Our goal is to invest in assets that grow over time and allow you to defer tax payments. The high tax rate, and to a certain extent the opportunity cost of spending time away from your career rather than investing in being better at it, make “hustles”, or ways to generate passive income streams less attractive. Still, generating other streets of passive income are worthwhile for several reasons — a change, satisfaction, a sense of empowerment that you are able to make a living (or a quasi living) in an entirely different way.
Maybe I am thinking of this the wrong way, because I admit I am quite risk averse. Should I worry less about my marginal tax rate now and more about having a long term alternate source of income? What do you think readers?
Depends on your net worth and desire to work for how much longer. What is your current income multiple?
I would try to make money through dividend income and long term capital gains taxes at a 20% rate. Muni bond income is tax free too. I would also start a business to shelter your income as well.
I’d highly recommend using a business as a tax vehicle. I am in California as well, I was able to get my effective tax rate down to the low 20’s.
Also, real estate can meet both your goals here. It can cash flow, generating passive income. The asset will also appreciate over time and grow in value. And when you’re a real estate investor, you can actually sell an investment property, and if you use the gains from the sale to get a “bigger or better” property you won’t pay taxes on shifting your investment. It’s a great way to expand the number of rental units you own, increasing cash flow and lowering your vacancy risk!
This is called a “1031 exchange”, you can check out more at the link below
I never understood this concept: if I make $X more and am taxed at 50%, I won’t do it!
What you are saying is that you wouldn’t take an extra $10m per year in income, because you don’t want to pay the $5m in taxes as you will only make an extra $5m per year. Does that seem reasonable? What if, in addition to making an extra $5m per yr post-tax, it involved you cutting your hours in half and doubling your vacation time. Would you still not do it?
In regards to this:
“Our goal is to invest in assets that grow over time and allow you to defer tax payments.”
This is a complicated subject, but as a Manhattanite, I always get questions from friends and family as to why I don’t buy real estate in Manhattan instead of elsewhere. I always explain I’d rather earn a 12% return now and pay half in taxes than earn a 0% return in the hopes of further appreciation. As a side note, I would add that if I could predict future Manhattan real estate prices with any accuracy, I would quit everything and just do that.
I suggest you focus on increasing income/hour spent every year after-tax.
How long have you been renting in Manhattan? One of my biggest regrets was not buying a 2/2 near 21st between Mad and Park back in 2000.
Since 2002. Unfortunately, I’ve spent approximately $600k on rent since then!
A few years ago, I finally saved and earned enough money to buy a property in Manhattan, but instead chose to invest in multifamily properties and other businesses. The bad news is I still want to buy a place. The good news is that I feel much better in cash-flowing businesses and real estate than I do owning a property, especially with a mortgage.
I generally feel that when you are buying real estate in an area where cap rates are sub-4%, one should be careful unless you can buy with cash. If you account for condo fees/taxes, most of Manhattan is sub-2% or negative, which is not appealing to me currently unless I find a steal somewhere.
My primary goal is to be able to live off of passive income first and then buy a place where my mortgage is paid off by the passive income as well. This way I can continue to enjoy work but not be stressed by any changes in my economic situation. Unfortunately, being a doctor in the US today carries a significant amount of risk for someone in their late 30s or 40s so I’m cautious with debt as I only see our incomes plummeting over the next several years. If that happens, I would consider working in another country, so for now, I’m still holding back on buying unless I find a good deal.
I would definitely love to own at 2000 prices though!!!
Ouch, but at least you enjoyed your apartments and kept liquid.
I will say that one of the GREATEST feelings is owning and living in your own place. It’s actually a priceless feeling actually. I’m always buying property to live in for lifestyle reasons first, and then rent out for cash flow once I’m bored or have accumulated enough to buy a new place.
If you buy to live, you’ll have much less regrets because life is pretty amazing.
This is such an awesome post. Never really considered passive income from something like a blog in the context of what it would take to generate the same amount of money.
You have completely blown my mind!
First thank you so much for your blog, it helps to understand more how you can make money working toward freedom.
I’m just starting out financially, saving 26% of my income (student loan payment included).
I really want to get in the passive income path, but I’m not sure what’s the best to start with between index funds and rental properties. And if I choose the last one, between saving 1 year and buying a small unit, or saving 2/3 years and buying a larger one.
I read a lot about personal finance and learn as much as I can, how can I make the best decision on this?
Thanks and keep on writing!
$30,000 dollars in passive income is HUGE from where I’m standing :)
Scaling up passive income by x 25 is a good way to get a handle on the value. This probably over values it, we are not comparing like with like for one. But it always blows my mind clean off it’s hinges to do the calculation.
Hmm if a website brought in just £100 a month, that £1,200 a year…wtf that’s worth £30k! :D
Would your advice to be, just go for it with passive income? I suspect that many, like myself, get too caught up in the planning…
There’s definitely a lot of opportunity to buy undervalued cash flowing web properties right now.
Always just go for it. I had to write my book fresh off of my layoff/severance negotiation. Then I improved it and added 50 more pages after it had been out for three years. And I will improve it again in the future too.
Once you build a platform (your website), you can add an unlimited amount of products to it. Just have to do it, which is why I wrote this post to write another book.
Sam is this why you don’t date your posts because they are constantly updated? If this is indeed a better strategy, why don’t more blogs do this?
Yes indeed. I try to make the large majority of my posts timeless and relevant. I’m not sure why more blogs don’t do this. It takes work to update hundreds of articles every year. Endless hours actually. But if you believe FS is a top blog, then other blogs with less traffic should probably consider following my method.
You’ve accomplished so much. Very inspiring! I’m slowly building my passive income streams. Lately I’ve been more focused on building active income streams though which aren’t as ideal as passive, but at least more income is better than no income! Having more active income is helping me grow my passive income though, so I am continuing to hustle as best I can. I still struggle with efficiency, but I think I’m getting slightly better. I’m not the sharpest tool in the shed, but I’m pretty durable!
In order best to plan and ‘see the writing on the wall’ it may important for those trying to engineer a layoff to identify the internal/cultural reasons for layoffs and work those issues too. I’ve heard more than one victim of some rightsizing say they were blind-sided by hanging only with Their certain set of cohorts (feeling secure and happy), where they became entirely unaware of some looming dislike being focused at them by another faction.
In this article, ex-Goldman CEO blames toxic Gen-X culture (ie. the new middle managers who took over) for its corporate demise: https://www.generationaldynamics.com/pg/xct.gd.e120315b.htm. And this article is one of many that cite baby-boomers get laid off first in Silicon Valley – and i can assure you it’s true :( https://www.businessinsider.com/stressful-lives-of-older-tech-workers-2015-11. There used to be many (silly) articles about “entitled Millenials” but more recently these have turned into something like “Boomers and Millenials get on, but neither like Gen-xers” or some-such thing.
Personally I experienced a boss who would not lay me off in a downturn because he said he ‘really could relate to me and that’s a rare thing these days’. And he gave me some silly award which sealed my fate with HR to make *sure* I could not get laid off. Meanwhile my buddies all got hefty g’bye packages and a couple of them sent me a smiley text with photos from Palmtree Beach Land, saying: ‘Hey! sure hope that award’s workin’ for you – things are good here, I got a new job and I got a great departure package!’.
Nice work Sam on updating the book! It’s great that it continues to perform well for you and supply you with passive income throughout the year.
If there is one other topic I’d love to see you write about in an ebook, it’d be around building and managing an income- producing blog… but that’s just me. :)
I also like your note around creating a financial safety net first, and then taking substantial risks to target huge rewards. It’s a nice place to live.
I use certificates of deposit also as my passive income for my IRA and extra savings. I also use a stable value fund in my 401k if that counts as a passive income. I choose to save a lot and invest in these products rather than trying to live through market swings. Please see my blog I have that lists my networth, budget, and ways I save money.
Would be crazy interested to hear how many people used your book to orchestrate their layoff – and had success. In 2009, I planned for months to successfully get laid off from my options trading firm, so that I could work full time on a startup. I probably could have used your book at the time. It took months, and just weeks before I was about to get off, I got the call into HR with a nice severance package.
I’ve told so many friends about the experience, and even encouraged / helped others to do the same thing. But it never occurred to me that it would be valuable advice at a massive scale. Congrats on the book, and putting those ideas on paper in a way that people can take real action. Even with a step-by-step guide – getting yourself laid off, and not fired, is a tight line to walk.
Hey Sam. Thanks for keeping this blog honest. I have been earning about 20k a year of passive income for the past several years on a 100k investment and have had thoughts of taking my money out and putting it elsewhere. Reading this post, I realize that I am actually doing pretty good, especially when you consider that my origional 100k is secure and I can take it out at anytime with a 30 day notice; not to mention that the income is cash. My goal is to reach around 65k in passive income, which would make me feel like I no longer have to work, reach a point of saying FU to any employer. Reaching such a point must be a great feeling. See you on that side in the near future god willing. Please write more about the psychological/ emotional epiphnies of somone who has been freeed from the bonds of modern slavery.
A $20K return on $100K is huge. How long is it for and what is it? I need some of that exposure!
Check out these two posts for your last point:
How Does It Feel To Retire Early?
What Does It Feel Like To Be Financially Independent?
Sam its in an ATM business owned by a friend. He needs a lot of cash for his business, especially when he wants to expand. I put my 100k cash in with written agreement to certain percentage of his profits ( I selected a few Atms that were totaling an avg of $2k profit a month for the last year ). Agreement drawn up by my lawyer also gives me the right to pull out my money with 30 days notice. Agreement also holds both the business and the individual responsible for returning my 100k if things go south. I am getting close to making my origional 100k investment back in passive income and hoping to keep my money parked as is. I receive hx of monthly ATM transactions online which in turn gives my my profit amount. Completley passive as all the leg work is done by friend, and although not as secure as bonds, relatively secure.
Sam I love how you are making passive income off your book. I have considered getting the book several times but my company doesn’t offer any kind of severance package so not sure it would help me.
My hope is to some day have a similar ebook (not the same subject but a ebook that I sell from my site) that will provide me with the income to support my lifestyle. One question though, why is it you don’t use Amazon Kindle? Is it easier? Or not profitable? Thanks
I think selling through Amazon limits you on the price you can charge ($10) and then they take 30% – 40%. I already have my platform built so I feel selling through FS is good enough. I will probably experiment with another book priced under $10 this year, where I can sell on Amazon and here.
I think $30,000 in passive income is huge! The increase in earnings from the 2nd edition is also interesting – instead of declining monthly sales they have increased. I wouldn’t be surprised if the book were to become an even bigger hit through word of mouth etc. Its a great idea. Do you think you have pad for the time and effort of writing it?
I have one real estate property now and am looking to get another one to increase passive income. Do you have an suggestions on how to go about doing this? Short Sale, Foreclosure, turnkey rental? I’m thinking turnkey makes most sense for me.
I wrote the book because it had to be written. The book is totally contrary to everything out there. When my severance check hit, I realized that I would make more than 90% of my colleagues at my same level or below, while doing only 3 months of work.
And with each year that goes by after leaving Corporate America, I see the tremendous value in negotiating a severance package. The continuing payments I’m receiving from my old employer is an absolute bonus when they hit my checking account. Can you imagine getting a $70,000+ check five years AFTER you’ve left your job? It’s nuts! But that is what a good severance package can do for some people who negotiate well.
Congratulations on upping your book income. That is very impressive.
My understanding of tax law is that all passive income (including royalties) above $200K (or $250K if filing jointly) is subject to the net investment income tax of 3.9% as part of the Affordable Care Act tax. Are you able to offset any expenses related to the book or are you hit with the full tax on all royalty income?
We’ll see when I do my taxes this year. But I’m always going to have an AGI under $200K b/c that is my ideal income for maximum happiness, so I don’t think the NII tax will apply.
I agree with your love of passive income streams. It’s this need to create passive income streams that has gotten me to diversify into multiple real estate properties and put a nice chunk of change into the market. With the real estate I have been using leverage. And its interesting, because your absolutely right, $30,000 doesn’t sound like much, but when you back track you have got to take down a pretty large commercial property (1.5 million) to net that much annually in rent (assuming you are using leverage to purchase the property and have debt service). I also recently started blog to keep me honest and dedicated to continuing my path to creating income streams. The $30,000 your taking home from the book is commendable.
i like your “harsh reality” advice sometimes, because hell, that’s how the world really is. but as someone with low self-esteem,
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.
was pretty good too..
Hey Sam, good thoughts.
The funny thing is that most people think they ‘retire’ when they stop working, but they go from being a -insert job- to an investor. The people who start their investing early in life, are the ones who have the most experience by the time they reach an older age.
One of the best ways that passive income kicks ass is the power of multiplication. If I’m an accountant, I’m mostly paid on how many tax returns I can do. If I’m a car washer, how many cars can I wash. You can do things more efficiently, but ultimately to earn more you have to work more. With passive, your earnings have no ceiling, dividends/rental income/book sales can all grow without a correlated increase in effort (though it helps of course).
I find it very interesting that you go back and update your posts. I suppose nearly all your posts are things someone might google and refer to, as opposed to on a DGI blog, no-one is going to go back to your February 2014 income and read that.
Thanks for sharing,
Looking at it as a scalability question is certainly an advantage. I think passive income is a must but it is different for everyone. For some, it is an internet based business like blogs, for others is is real estate or the stock market. The key is to be focused on a plan to grow passive income year over year while you’re working your “day job.” At some point you can transition or maybe you never do, but there’s power and comfort in knowing you are independent of your day job via passive income.
My goal each year is to see my passive income grow. Some years it may be 1% but if I can continue growing and compounding, I will be very well to do.
One of the keys to creating recurring search traffic that ranks well is writing “Evergreen Content.” This post, Examples Of Good Resumes That Get Jobs, was written about 5 years ago, but is one of the top visited articles because the information is thorough and constantly updated.
Focus on writing posts that have the longest shelf life possible!
That’s awesome! $30K in passive income is nothing to sneeze at!
I’ve been building up my passive income streams too, over the past 5 years through rental properties. I finally reached the point where I no longer had to pursue traditional employment. It’s all about lifestyle design. I live in one of my rentals (for free) which allows me to have super low expenses and thus way more flexibility than my peers.
That’s great you’ve been able to generate enough in 5 years to no longer have to work. I wonder how many other people are willing to work/build something for 5 years to also have the same opportunity.
Right now my book is in its 4th year of life. Perhaps at the end of its 5th year, it could comfortably support my lifestyle alone here in SF. Probably not, but I’ll give it a try!
Thanks for sharing, I hadn’t read that old article ranking passive income sources.
Until recently, I never gave passive income a real thought. Even when seeing the different bloggers that publish their passive income (dividend, blog, rental,…) I never made the click.
When I started to track earlier this year my option trading income, the I made the click. I came to realise the power of passive income: with this level of monthly passive income, how much sooner do I reach my number to FIRE based upon the ‘pct rule… and the number is nice: each 100 USD lowers the need with 30K.
The other onus effect is that I add more money in doing so to my FIRE goal. A double win!
Sam, I think it was about a year ago I started reading your blog. At that time at age 43 I just took on a new job with potential for partnership in 5-7 years which will pay me $400-$500,000. I didn’t love it, and you suggested that I grind it out for 1 year. The year is almost up, and I have had enough. I would like to create something like you rather than trading time for money and tip toeing around superiors trying to look good.
Have you (probably not) regretted not grinding it out in corporate finance? You would be making mid to high 6 figures. A lot more than what you are making right now. How do you rationalize making less than your peers?
Once I leave the rat race I’ll be looking at a $150,000 income. Eventually I’ll have another $80,000 from rental properties after I pay them off but that’s 10 years down the line.
How do you feel watching your friends fly business class and eating at Michelin restaurants. Stuff like that doesn’t mean much too me but they are not meaningless either. It does feel nice to have a large financial buffer.
Good question! The fear of not keeping up with my peers last for maybe 6 month, and then it went away completely.
The newfound freedom and tremendous lack of stress really filled in the wage gap hole. Further, I realized very quickly how LITTLE I required to be happy with life. You really don’t need much at all.
I just got back from an incredible 3 days in Palm Springs for the Indian Wells tennis tournament. Both friends are well off. Both probably make much more than me. But we all had the same good time, and they have to go to work on Monday today and I do not. I was internally smiling from ear to ear when they said they had to go to meetings this afternoon or do calls. :)
If you want to do a consultation call, let me know. I speak to many professionals in your situation with your income level and age to help them transition. It is a difficult period since work is what you’ve known for so long.
Sam- you do a great job on this blog. Been following you for awhile. Passive income is the key not only to financial freedom, but life freedom, however one wants to define it. What folks who want Financial Independence need to realize is that achieving sustainable Passive income is not a Passive endeavor to get going…it’s serious dedication and work to get to that point.
I’m a sole supporter of a family of 4, and am financially free. After 22 years of grinding it out in corporate sales, I walked. How? by accumulating a real estate portfolio on the side…nights, weekends, and yes, taking vacation days to do it! I’m in the Boston area and own 4 multifamily rentals with a market value of 4.5M and a net (take home) rental income of 12k/month. This is in addition to socking away the 401k, IRA’s and 529 college plans all along. Next up is investing in alternative business that throw off cash.
You are so right that if you make a high income and want to get off the corporate hamster wheel then please save and invest very aggressively….no secrets here.
Decide to take action on it!
Discipline yourself to do it!
Thx Sam and good luck everyone!
I think you should go for something other than pure finance. The main topic of this blog is PF, so maybe a topic at crossroads, bringing new readers with another subject who could still be interested in PF ?
Not FI, because frugal is trendy and I got a little bored with the redundant posts I read, no matter how funny, witty and knowledgeable is the writer.
RE is interesting but not really “niche”, is it ?
I remember liking your advices about interviews (“dress one step up”?) and your hesitation about going back full time. I think this would be pretty useful, as would advices about the finance industry.
Blogs would be a nice subject too. How to build a team to make this site run smoothly, caveats… (and are you planning on creating a forum?)
You can clearly see that all the ideas you picked are spot on for your readers since Im as for now the only one who picked “others”.
I picked “others” because I know you like others things. Maybe a post about giving back and how to do it, (after all, you do that with your book already). Or a thing about parenting (how to teach FI to your kids, MMM did a few posts about it) Also maybe about questions you get ? I remember reading the priceless “how to get a rich man” !
Maybe a hilarious dating/relationship type book or a digital lifestyle book instead with funny stories during my travels. Could be could!
Would dig it !
“never quit, get laid,” huh? :)
(wonderful typo… don’t change it)
I don’t think that was a typo.
I always thought it was a typo, and the original text was intended to read, “never quite get laid!”
Congratulations on the success of your book and your site.
Having both quit without another job lined up and having been laid off and not knowing what my next steps would be, once you get over the sting of being laid off, I can tell you it’s much better financially for the reasons you mentioned above – severance and unemployment.
It has taken me a while to see passive income as you describe – as a cash-generating asset rather than as a small income stream. Once you can change your perspective, it really does change everything else.
Thanks for your great thought-provoking posts.
Great way to frame the value of passive income. I often think about money that we save and how much it means in investments. Since I am retiring from my career in less than two weeks, I will be interested in finding opportunities to build nano businesses that can generate passive income I also think it will be fun. Congratulations on your book – I think that you have such a contrarian title really makes it interesting to people.
I created an online course on how to recover from depression naturally. It was my attempt at creating a passive income stream. Right now, it doesn’t do much in sales. Hopefully that will change as I learn to market it better.
Great article. I am working on adding to my passive income stream, which is mostly real estate based today.
How does income compare between e-book and blog? Is publishing your e-book information in blog format potentially more lucrative?
As opposed to a hard cover book? If you have a large enough platform, the answer is to self-publish. I’ve been asked by traditional publishers to work on a hard cover book, but all my research indicates that doing a hard cover book is 90% for marketing some other thing to make money off instead.
My book is a lead generator for private PF consulting work I do with individuals. However, I’ve limited the number of clients to 4 a month (one a week max) because it takes a lot of work, thinking, and planning on my part. It’s not a scaleable business, but I do like helping people.
Look at your book as selling your own product on your blog versus selling other products you think are great. A big part of FS is the Career section. So my book fits nicely with many topics I’ve already written about and will continue to write about.
The book is great, really helpful and it paid for itself 1000x over in my exit. Also, enjoyed the ‘best of’ collection compiled with interesting articles, with profits going to charity. Continued success, FS!
I started thinking about websites in terms of the price other passive income investments would cost recently. It’s been on my mind ever since you briedly mentioned it in another post.
A nitpicker would say it’s not a fair comparison because websites are not entirely passive. The overall message of this post is absolutely true though!
The biggest cost of building internet businesses is your time. If you enjoy it (like I do), the opportunity cost doesn’t seem like a problem at all.
Plus, you need to consider what a great learning experience building niche sites is!
I’m getting paid to learn sales, design, marketing and building a network.
While I will still be going for a ‘traditional job’, making money online is a no-brainer until I finish my education.
Who knows, maybe by the time I’m finished with college I’ll be making more money online than I would at a finance job!
If not, it was still a fun ride.
I think websites are a great value at the moment at around 1x annual earnings. Pulling the trigger on the right one is difficult though so I started one and then am keeping my eyes peeled for something of value within my interested to pop up.
I would go with any of the niche books first. It’s easier to market to a niche, and the topics you suggest seem perfect for your readership. I would pay WAY more for one of the niche topics, as opposed to the general financial independence book. More sales, maybe, but you’ll probably have a tough time selling at anywhere close to $75. My experience has led me to conclude that selling less for more money works better. The customer that pays more is a better customer. The more specific the information, the higher the value and the more obviously useful to the person buying.
Good points. The best scenario is if I can instantly produce ALL the books mentioned, w/ various price points for optimality.
I like the one book a year, or one book every two year pace. But I know that after all the books have been written, I’ll wish I had produced them sooner. Getting started with the writing is the same block as people have with starting a website or doing anything.
I agree with you on the customers at higher price points. Another example is all the bad incidents with Uber have all come from Uberpool passengers than UberX passengers. My nitty gritty experience driving for Uber was a catalyst for me to raise my price with the book expansion. How synergistic is that?
Congratulations on this success Sam! Well done I would say.
Up until a few months ago I thought that a passive income was not for everyone, that you would need millions and millions of dollars to live on the interest. Or something like that. Blogs like yours have really opened my eyes to seeing other opportunities.
I think people hold back from giving online entrepreneurship a go because they think it’s too good to be true. They don’t see that it takes a lot of work before you will start seeing any results, it’s more than just typing a few sentences and adding a picture. Also, online working is a relatively new phenomenon.
I am lucky enough to be in a position where my work can be done online. This is not true for everyone, it would be different if my most important skill was bicycle reparation, or baking for example.
I voted for the ‘financial independence sooner rather than later’ book by the way. Even though the ‘recipe’ is more or less the same every time I read about it, I still can’t get enough.
Great post Sam, congrats on the success of your book! I think you’re exactly right that the average consumer wouldn’t be impressed by 30k/year in revenue, but that’s just because they lack understanding of what it takes to generate passive income. I think the chart you created illustrates that very well.
I voted for “A niche book on getting promoted and paid faster at work (13%, 8 Votes)” because it has the most impact on me right now in my young career. I was quite surprised to see it in fourth place. I think the recency effect from the post about becoming a blogger and this post about passive income influenced the voting of the real estate and blogging options, as people seek options to “easily” boost their income through side projects, but I was stunned that the general book about financial independence option garnered such a high % of the vote! Hello people, this whole website is basically a book about achieving financial independence! I suppose that book would probably sell the best as not everyone is willing to find the articles on this site that matter the most to them. From the author’s perspective, what topic appeals to you the most for a new book?
Your comment reminded me of my younger self. Trying to get ahead at work by being the best I could.
I’m just going to share one thought. Companies are no longer loyal. So please get ahead at work but have a nice little passive income (via investing, etc) on the side and a savings egg.
I appreciate the insight. It’s always good to be reminded about the fact that company loyalty went the way of the pension and the dinosaurs. I wonder which came first, companies reacting to a changing job market and those seeking greener pastures or employees adopting the “gotta go to grow” mindset once company loyalty died.
Anyway, appreciate the insight and motivation, Q. Cheers.
+1 on quantakiran’s comment. I’ve gone through several phases in my current company: busting my *** off versus slacking off. Results have been roughly the same: 2% salary increase every year, end of story. Did not matter that some years I brought tremendous value to the company, or that other times I barely did enough to justify my paycheck: I’ve grown extremely cynical as promotions are not a direct result of the value you provide to your company.
By comparison, my side gig is generating money and growing as a direct result of the efforts I put into it. I could spend 10% more time at work every day for a 2% annual growth, or spend that 10% of time growing my side gig, which has been growing at +15% every year. Guess which one I’m choosing?
I could write about any of these topics. Perhaps a book on early financial independence will have the most appeal. It is still a niche subject, and I would have to come at it from a more creative angle for it to be unique. I can also write very freely on building a lifestyle business b/c I love, love, love everything there is about entrepreneurship since I was a kid. It’s a dream come true to have my own little business now. I love to test, connect, build, and grow things.
So maybe I’ll do both!
Thinking in terms of how much capital would be needed to generate the same return is a wise perspective.
I’ve been thinking of tackling of writing an eBook myself and I’ve come across the same obstacles you mentioned. I thought I had little material to work with and nothing new to bring to the table. After seeing plenty of online examples, I’ve decided to move forward with creating an eBook.
I’d imagine most people get stuck in the “I can’t imagine what anyone would want to read by me” phase. At least, that was my biggest hurdle.
Your next book should either be on reaching FI sooner or about building a blog. To me, each of these establish the ability to generate income in a way that is conducive to having more freedom.
Great post Sam, A consistent passive income stream is the biggest thing we are missing. I started a blog a few months back to get my feet wet, even if it fails I have already learned enough to apply it to my next idea and it has taken the fear out of trying something new.
I think lack of creativity and being discouraged by the competition are two big reasons why people are scared to start something online. It is hard to imagine people coming to your tiny site when there are well established blogs on your topic. Like you said in this post, you regretted not starting sooner and I think everyone else will too once they realize they have something to add.
Would love to see a book about blogging! My second vote would be faster financial independence.
Why don’t more people blog or create an information product? Because most people half-ass it. Then there are those that actually try hard but their writing style and organization is still unreadable. Being good at writing and being able to convey complex ideas simply are prerequisites to having a successful blog or information product. Like anything else, some are born with the innate ability and others will have to work super hard to get there. Then that’s only half of it. The other half is the creativity – doing something both new and useful to stand out. So, I can understand why more people don’t try. That’s not an excuse, but it’s understandable I guess.
Your book is successful because it’s unique. No one else had really wrote about it. Thousands of people have wrote about real estate or getting to FI sooner. I tend to think that any real estate book other than the fundamental principles (which has already been done successfully) are next to useless as there are hundreds of ways to get into real estate and every author would have their own experiences that may not coincide with what would work for others. I voted “getting to FI sooner”, but even that would have to be much more than a book about cutting costs and investing. Generating more passive income I guess? You’re right in that the riches are in the niches.
I really think more people will SURPRISE themselves if they just tried something new.
Can you imagine if 1M people who had never created art were all given a blank canvas, 10 cans of paint, a brush and some other tools? There would absolutely be at least 1,000 of us who would create something pretty amazing.
The biggest barrier I see is the desire to try, and try again until something works. It’s hard to get the inertia going in the beginning due to a lot of self-limiting beliefs.
It can seem like a daunting task to start. I think what you said about trying again until something works is the key. Everyone out there has something to offer, but sometimes it takes a little while before they can figure out what they’re good at. Sticking with it and being willing to change should help people eventually be able to differentiate and grow their own unique audience.
“try, and try again until something works” – the problem/question I have is the point where you say “this didn’t work” and move on to the next try. When does giving up too soon change to a good decision?
My thoughts exactly. I’ve been pondering for some time what sort of informational product I can create that will be the right balance of quality, niche & volume to generate an attractive stream.
While there always work to build a passive income, building one that is actually passive with periodic minor updates can be a challenge. But it’s worth the effort!
That’s amazing that one little book is such a revenue generator. I’ve only done one experiment with passive income generation like this so far – I designed a couple of knitting patterns (because I’m weird) and in the past few months I’ve made an extra $60 total or something. Better than nothing, but I think it’s still more of a fun project than an actual revenue generation tool.
I’m interested in writing an ebook or something as well, but I’m still getting my feet wet in this whole blogging world as I write about my own personal financial story. Who knows? Maybe I’m coming up with the material for my ebook right now as I’m living life as an underemployed graduate and coming to terms with money management and entirely new ways of making a living than have ever been presented to me before. It’s an interesting thought.
I suppose I’d write about that. Or the daily lives of my neurotic cats. That may be much more interesting.
Thank you for the post Sam. Your post are very inspiring and motivating and I hope one day to build a great website like yours. Thanks for showing us it’s possible.
Keep it up and a follower for life. Cheers my friend.
I see the value of passive income streams especially now that I have a family and am the only one working. I have been working on projects or activities on my free time, activities that generate additional income for the family. While these side jobs aren’t making as much right now, I still continue on doing them because they provide money for the family and I don’t have to rely on my paycheck to cover our family’s bills.
I think some of the reasons people don’t take advantage of opportunity to create something that can be online are lack of time, belief, patience. Time, because a lot of people are busy especially at work. They work tirelessly and work long hours to earn more money. They don’t try other avenues to create more money. This goes to the lack of belief. They don’t try making something and marketing it over the internet because they think they won’t succeed. Basically, they quit before they even started.
Many people are just impatient as well. When they want to do something, they want to see immediate results. This doesn’t happen quite often. If it did, then, all my people would have done it. A lot of things especially good ones take time to realize or obtain. It’s just a lot of people are impatient and don’t pursue and, then, quit right away even before starting or while in the processing of attaining whatever it is they want to obtain.
Congrats on the success of the updated book! It’s a big change to look at passive income in terms of the capital it would take to generate a similar return. I’m making around $150 a month from my blog now, which isn’t a ton of money, but it would take $36,000 at 5% to generate that much income, which is a big motivational boost. I’ve made an in depth tax planning spreadsheet that is starting to get some sales, but long term I’d like to write my own ebook, I’m probably about 1 – 2 years out on that though.