Passive Income? Well…

Ah, passive income. It has become the romanticized ideal of how to make money, the American dream redefined. “I can be on the golf course or sailing on my 38 foot boat because I don’t sweat to be rich. I’ve created a lucrative passive income stream. I am smarter and richer than you.” Sigh…

I’m not here to criticize the aspiration of creating a passive income stream. I wish I had one (or two)! My goal today is to tell the passive income backstory because in reality, creating a passive income stream is not as easy as it may look. Furthermore, a passive income stream usually will not make it possible to quit your day job and retire early. Most of all, be aware that creating a passive income stream is an active process. To make it happen, you may have to work harder, smarter and maybe for a longer period of time than you might have imagined.

Even if you’re able to create a passive income stream (and that is not guaranteed), the ROI might be underwhelming. The passive income stream that you have the wherewithal to create may only be enough to pay your cell phone and Wi-Fi bills, not a mortgage and car note. Still, even a modest passive income stream is nothing to sneeze at. It’s just that everyone daydreams of it being so much more.

Passive income defined

Before diving in, let’s clarify the term. Passive income is a reliable, long-term revenue stream that you receive but do not work full-time to generate. Passive income is sort of like a no-show job—work 8 hours and get paid for 40 (or work 20 hours; more about that later).

The ultimate passive income stream is a trust fund. To become a beneficiary, the only work that must be done is arrange to be born into the right family and after that, you’re golden. Heck, you might be able to live off the interest (the ne plus ultra). But alas, not all trust funds are generous; most pay in the low five figures annually. Still, even a trust fund that pays $1000/ month provides a nifty little cushion that no one would refuse, not even Bezos.

Dividend-paying stocks, bonds, or mutual funds are another source of passive income. Selling advertising space on a blog or newsletter is yet another method of generating passive income. Rent received from an investment in commercial or residential property is the most popular form of passive income because it is the most profitable.

Passive income starts with active work

If generating a passive income stream is the goal, accept the fact that time, effort, a particular skill set and (often) start-up capital will be required. Those who are now collecting a reliable passive income stream had to work for it, unless they are lucky trustafarians.

A fair amount of research, the ability to interpret and apply the data, plus good luck, good timing and good investment advice are needed to reliably earn quarterly dividends on Wall Street investments that will make even a modest positive impact. Following your investments and getting a sense of when to put in a buy or sell order, or having the courage to hold when your fund is down for the third week in a row, takes a strong stomach. Even if you have a better-than-average proficiency in investing, you’ll be very lucky to regularly earn $500/ quarter in dividends and in fact, most people lose money in the stock market. Earning an extra $2000/ year is nice but does not make much difference, especially when balanced against the work required to generate it. But then again, maybe you like the adrenaline rush?

Rental property brings in a much better ROI, but getting into the game is expensive. A two-family house in many areas will cost north of $500,000 and a 10 % down payment plus closing and other costs push the price of entry beyond the reach of many. Couples and other partner groups make the business more approachable and while profits (and expenses and losses) must be split in proportion to one’s investment stake, group buying power allows for more properties to be purchased and the potential to generate a more sizeable revenue stream.

Most rental income investors start by purchasing a multi-unit building and moving into one of the apartments as they collect rents from the others. The rent received is expected to fund the property’s mortgage, taxes and estimated building maintenance budget and that is usually possible. Aspiring owners must research the rental occupancy rate and average rental price of similar buildings in their locale and balance that figure against projected expenses.

Bloggers and newsletter writers must be highly knowledgeable in their selected subject and have boots-on-the-ground experience that gives credibility and earns the trust and respect of readers. Skillful writing that informs and entertains readers is another primary must-do.

Mommy bloggers must be mothers. Food bloggers must be excellent cooks, or at least imaginative and entertaining cooks or alternatively, have the funds to regularly dine in high-end or very trendy restaurants (getting comped may be possible but to maintain credibility, it’s best to pay).

Having expertise in a topic that has better-than-average potential to draw the six-figure audience that advertisers demand makes the climb much easier. Mommy blogs, foodie blogs, travel and fashion blogs are among the most popular in the writing sector. Publishers of business blogs or newsletters trail far behind that flashy crew, I’m sorry to say. Writing a popular business book, usually in conjunction with a VIP client list, a regular column in The Wall Street Journal or some other lofty publication, or a TED Talk, gives much-needed traction.

Travel blogs are not quite a thing in the COVID era but when they were hot, the capital to fund trips to destinations that are either lavish or modest is necessary. Available time to travel is another requirement. Unless one is a flight attendant, who can take a vacation every month?

Fashion blogs require a big wardrobe investment in addition to taking a deep dive into the collections of numerous designers who are based on three continents. In the pre-pandemic era, having the connections or savvy to sneak into the season shows in New York, Paris, Tokyo, or Milan is a big plus for readership and acquiring ads.

Passive income, active maintenance

Time, effort, or money will likewise be required to sustain a passive income stream once it’s launched. Continuing to sell ad space on a blog or newsletter is predicated on maintaining, if not expanding, a big readership or ads will be pulled and passive income lost. Compelling topics must continually be presented. Three or more audience-grabbing social media accounts that are designed and continually tested for maximum audience appeal must be maintained, to promote the publication and deliver the readers to advertisers.

Investors must study the mutual funds, bonds, precious metals, commodities, or stocks that have historically produced results that beat the market (such as Index Funds). Researching companies to learn about potentially market rocking products and services that are due to be released and can be expected to have a positive impact on the company stock price is an ongoing responsibility of successful investors. At least weekly monitoring the performance of one’s portfolio goes without saying.

Rental income, while it usually produces a very good ROI, can be a real headache because one must deal with people, the tenants. Their lives and problems can become your drama. The pandemic affiliated job losses have caused millions of Americans to be unable to pay their rent on time and in full. This outcome has put thousands of small investor property owners in jeopardy regarding the big mortgage they may owe on their recently purchased property. If that weren’t enough, taxes are only going up and maintenance costs are never-ending. The real estate market, while still lucrative and reliable, is more risky of late.

Going forward

If you have a certain skill set, time and capital resources to create a passive income stream by way of a potentially lucrative activity or business proposition, do yourself a favor and develop a comprehensive strategy, in fact a business plan, to improve your chance of success. Identifying, launching and sustaining a reliable passive income stream is essentially starting a business. Considerable up-front effort and capital may be required and there are no guarantees, only management of risks.

Thanks for reading,

Kim

Photograph: Kim Clark. At the Prudential Mall in the Back Bay of Boston, someone who might be working on creating a passive income empire.

How to Monetize Your Brand

In the internet age, there are numerous Freelancers who gain significant notoriety through social media platforms, mainly Instagram, Facebook, YouTube, Twitter or their blogs.  Their accounts have thousands of subscribers and followers.  Paid advertising deals have come to about all of them and provide a revenue stream.  However, advertising deals are not all equal and advertising rates received can be too low to substantively impact one’s financial status.  Often, the achievement of notoriety earns these Freelancers little money.

Among the primary differences in earning a living in the 20th and 21st centuries is that in the former, one made money by doing a particular activity, such as law, medicine, secretarial, writing, or being a musical entertainer.  In this century, there are proportionately far fewer traditionally employed full-time workers and many more of the self-employed.

A 2017 study by Intuit (maker of QuickBooks) reports that 34% of U.S. workers are self-employed, swelled by Lyft and Uber drivers who join the usual plumbers, electricians, website developers and event planners.  The path to money for Freelancers is to skillfully parlay the achievement of notoriety into a series of revenue streams that create a sustainable income.

For example, Freelance writers of magazine articles were formerly paid $1.00 per word or more and many publications would regularly hire writers to produce 500 – 1500 word articles. The writing life was good.  Even those who wrote for a mid-level daily newspaper and occasionally submitted a story to a middle-brow magazine could be financially comfortable.

Then the internet age arrived and turned the world on its head, in more ways than one.   Online ads may sometimes be clever but they are apparently perceived as less compelling than the full-page ads that once fattened your Sunday newspaper and as a result, online ads command a lower price.  Advertising revenue is tanking and has caused publishers to cut back on editors’ salaries and perks.  Compensation for writers at online magazines is a mere pittance.  In the literary world, advances to writers have become smaller and less frequent.  Book tours are for big-name authors only.  Publishers and editors-in-chief have much smaller budgets and the chauffeured town car to take them to the office is about to disappear.  The Vanity Fair and Rolling Stone editors-in-chief recently announced their retirements.

Musical entertainers of every level made money from record sales, singles and albums, plus touring.  But in the late 1990s that began to change when Napster brought about peer-to-peer sharing of music files. Today, music is downloaded and performers from Nicki Minaj, who is the face of MAC cosmetics, to Lady Gaga for Tiffany & Company, use their famous brands to generate millions of dollars for the corporation and themselves by appearing in ads.  Touring remains relevant but music sales, for decades the very reason for being for a musical entertainer, are greatly diminished.

In the 21st century, one must learn to generate a livable and sustainable income as a result of one’s writing, or other expertise.  This is an unprecedented shift in the way an economy works.  The big challenge for those of us who are self-employed and following the playbook as regards developing a strong online presence, teaching at the university level, speaking at business and professional associations will not appear in an auto advertisement any time soon monetize their comparatively modest brand and perhaps superior expertise?  For those who no longer find an open door to full-time, benefits paying employment, making a living only becomes more difficult as time goes on.

So what does one do? Suggestions on how to make money by building on your brand will be featured in next week’s post.

Thanks for reading,

Kim

Academy Award winning actress Joan Crawford (Best Actress 1945, Mildred Pierce), who was the Pepsi Cola brand ambassador, in Frankfurt, Germany (1963).  Photograph: Tony Evanoski/Stars and Stripes (publication that has served military personnel since 1936)

Ready To Fly Freelance!

According to the Freelancers Union, 53 million Americans, 34% of the workforce, engaged in some level of Freelance work in 2014 (that includes workers like Uber drivers, who are classified as private contractors). Of that number, 45% were Freelancers who consider themselves self-employed professionals; 27% were moonlighters, doing Freelance projects in addition to their primary employment; and 18% were considered “diversified” workers, who cobbled together three or more revenue raising activities to support themselves.

Businesses large and small continue to eliminate traditional full-time employment and push American workers into figuring out how to support themselves independently. Some workers have an entrepreneurial mindset and an independent spirit and would strike out on their own regardless. Maybe that is you? Whatever the circumstances, the time may be right for you to plan to work for yourself. Here are some signifiers:

You are confident You’ve honed a set of skills over the years that you are certain others will pay you to provide to them. You have access to potential clients who are familiar with you and your work and you are fairly certain that you can build a successful organization that will yield an income that will allow you to pay your bills and maybe even exceed your current salary.

You have a very good professional network and colleagues who will make referrals for you (and you will be able to return the favors and make referrals as well). You believe in yourself and your abilities and you are not afraid to step out and go it alone.

You are self-motivated You want to be independently employed, the captain of your own ship. You are a self-disciplined leader who is comfortable working alone or in a team. You are able to meet deadlines and enjoy meeting and especially exceeding expectations.

You cannot get a better job The new economy is unkind to so many. Middle-class jobs have been disappearing since the late 1980s as a result of computer technology, globalization, the off-shoring of labor and most of all, unprecedented corporate greed that has driven down wages, restricted merit raises for the vast majority and made billionaires of the 1%.

Age, race and gender discrimination are real and well-documented. The pervasive use of “search committees” that control the hire of even administrative assistants, whose members apparently aim to hire minimally competent functionaries who are incapable of out-shining the committee members, effectively block the employment of many talented workers.

Regardless of your skill set and experience, work ethic and track record of working collaboratively, you may not be able to get either a promotion or a new job anywhere. Breaking into a new field with “transferable” skills is usually limited to either the enormously well-connected or the very fortunate.

You’re a good salesperson  Freelancers and business owners are salespeople, first and foremost. Devising and implementing a marketing plan (and financial and operations plans as well) requires that you promote your venture in ways that will put you on the radar screens of potential clients and referral sources. Whether you are an introvert or extrovert, you must effectively talk up your business, in particular to those with money and motive to do business with you.

You have money saved You’ve been able to save 6 months + wages that will float you as you bring in projects and rack up billable hours. To further cushion your Freelance experience, you would be wise to identify and pursue other revenue streams, better known as flexible part-time employment. Teaching is a popular sideline for consultants, but do not be embarrassed to consider taking a low-level job that will not bring you into contact with potential clients. You just want to discreetly make money and also have time to pursue your real work.

Flexibility matters You may have aging parents who need your help; you are the parent of school-age children; or you prefer to work intermittently (or all three). Being saddled with the ongoing requirements of a 40 hour + job may not blend well with your personal obligations.

If you think that you have a marketable skill, arrange to let potential customers know and try to get hired for a few projects while you still have traditional employment. The strategy also applies to those who are retired or about to retire. Join the 27% of Freelancers who moonlight and beta test your business concept. You could be pleasantly surprised by how much you enjoy running your own empire!

Thanks for reading,

Kim