Many of us are used to trading our time for money. That’s certainly the case for freelancers, and even nine-to-five employees. You provide a service or skill, and in return, you get paid. However, this income model is inherently flawed and lacks in certain areas. In this blog post, you’ll learn about the difference between passive income vs active income, why you need to care, and how to earn more without directly trading your time for it.
Passive Income vs Active Income: Wait, What’s the Difference?
Active income requires your direct involvement and effort. You will not generate any money without working for it. Passive income is money that you earn in the background. While it still requires effort, you’re not trading your time for money. You’ll have the ability to earn money even when you didn’t directly work for it.
Let’s go through a couple of simple examples to better illustrate this!
I have a content agency. In order to generate revenue for my business, we have to write blog content for our clients. At the end of the month, I invoice them for that content, and they pay us. This is active income. If we don’t write that content, we have nothing to invoice for, and we can’t get paid. We are directly trading our time and effort (writing) for money.
I also have another business where I teach freelancers my method for landing clients. As part of my brand, I sell a number of digital products, such as a LinkedIn optimization guide, cold email templates, and a list of almost 200 profitable freelancing niches. I spent about a week upfront creating these digital products. I lightly promote them by mentioning them here on my blog as well as on my YouTube channel. However, this is the extent of the effort I put in. People find and purchase them independently, on their own. I wake up to sales. I’m not directly trading my time for money. This is passive income.
3 Benefits of Passive Income
You might be thinking, “Well, as long as I’m making money, who cares what type of income it is?” And that’s a fair question! But here’s the problem. What if you get sick? What if you want to go on a vacation? Or have a baby? What if you simply want to work less? If you’re solely relying on active income, this means that you will automatically earn less. Let’s go a little deeper into some of the benefits of passive income vs active income.
1. You Can Earn Passive Income Anytime, Anywhere
We already touched on this but it bears repeating. You can earn passive income in your sleep, on vacation, and while you’re giving birth. You can earn it when you’re sick, when you’re on your honeymoon, or when you’re taking a much-needed mental health day. Passive income recognizes no barriers to time, geography, or effort.
2. You Can Scale it as Much as You Want
Active income has another inherent limit: You only get 24 hours in a day. So, once you run out of time, your income will also plateau. But as you now know, passive income doesn’t have this limit. I can sell two copies of my LinkedIn optimization guide, and I can also sell 200. The effort on my end doesn’t change much. I’m not limited by time, and I don’t have to spend more hours on it to sell more.
3. Passive Income Introduces Additional Streams of Revenue
I was always told that having your own business is incredibly risky. However, I don’t think this is a fair statement, and it doesn’t paint the whole picture. I think relying on one employer (or one client) for your entire paycheck is risky. If you lose that paycheck, you’re in big trouble. This is another benefit of passive income. It allows you to add revenue streams to your business (without expending a ton of time and energy), which makes your business more stable. Passive income is the reason I was able to continue earning a decent living even during the pandemic when a lot of my agency’s clients paused their services. And it’s something I plan to continue as we wade through this recession-ish macroeconomic state.
3 Examples of Passive Income
Alright, so you now know the difference between passive income vs active income. And you know why passive income is so beneficial to you, especially as a freelancer. While I can’t explain all the details around how to start building passive income streams, I want to at least give you someplace to start. So, here are a few examples of passive income strategies.
1. Small Digital Products
This is what I mentioned earlier. Examples of these include:
These should be small products that you sell for $50 or less. Check out this video, where I go into more detail:
Start here! When it comes to building passive income, you need to get your feet wet, first. Small digital products are a lighter commitment and allow you to test the waters before diving into something more intense.
2. Dropshipping and Print-on-Demand with Physical Goods
This is one I’m still playing with myself because I’ve found that there’s much more of a learning curve and the upfront effort is much greater. Using sites like Redbubble and Zazzle, along with Merch by Amazon, you can sell branded items that you don’t have to actually print or carry yourself. For example, I’ve created simple designs in Canva or Photoshop and used a third party that prints those designs on tote bags and pillows. However, they only do this once someone has placed an order. (That’s what “print on demand” means.)
So, the customer places an order through Amazon or Redbubble, which connects to the third-party printer, which prints and ships the item. Everyone gets a cut, and I take what’s left.
Because of the learning curve and how much time it takes to get this all set up, please know that while this is passive, it’s not quick. Again, my suggestion is to start with small digital products.
3. Online Courses
For example, I have my program, Revenue Spark. I want to put a huge disclaimer on this because while it can be passive income, it also takes a ton of effort. The time you need to invest in building and maintaining the course, not to mention promoting it and looking after your students, can quickly turn into a full-time job. However, it’s still passive in the sense that there is no limit to how many students can enroll in my program. Also, I don’t go knocking on doors to sell my program. I promote it and talk about it, but students come to me.
This list certainly is exhaustive, but again, these ideas should at least get you thinking.
A Few Final Tips on Earning Passive Income
Before we go our separate ways, I want to offer you a few gentle but very important reminders.
Passive Income is Not a Get-Rick-Quick Scheme
If it takes weeks or even months for sales to kick off, don’t be discouraged because this is completely normal! The only people who see huge sales right off the bat are people with massive audiences — I’m talking hundreds of thousands of loyal followers. Most of us don’t have this size audience. So, be prepared to be patient. Building passive income is a marathon, not a sprint!
20% of Your Products Will Generate 80% of Your Revenue
This comes from something called the Pareto principle. What does this mean for you? Well, it means that you shouldn’t sell one digital product and expect fantastic results. You need to offer at least several options because you’re going to find that a couple of them vastly outsell all the others.
They Don’t Need to be Perfect to Sell
When I was creating my first digital product, I was so hung up on making it look perfect that I slowed myself down. I’m not a graphic designer, nor do I need to be one, because guess what? My customers don’t care! I sell products to help freelancers. As long as they get the information they want, I’m good. You still want your products to look professional and aesthetically pleasing, but I promise you that they don’t need to be perfect. With the exception of one product, which I outsourced to a designer because I didn’t want to deal with it, I built all of mine for free in Canva.
I know what you might be thinking: “Great, I have more work that I need to do?” Yes, but look at it as an investment. You put in a little effort now to earn money with minimal effort long-term. Do your due diligence, be open to testing new things, and have patience. Passive income is a freelancer’s best friend.
Head to YouTube for more help.