This is a guest post from passiveincomefamily.com. I've been following this blog for a while now, and I really enjoy reading every new post. Feel free to check out to visit PFI's website and subscribe to the RSS feed.
Are you one of those people who are curious about creating passive income, but are still unsure of the potential it can provide to you? Springtime is right around the corner, so what better time to talk about how creating passive income is just like growing a new lawn. That may seem like a strange comparison, but one that is very similar when you break down the steps.
About a year ago, I was one of those people who were curious about passive income creation. I had always been fascinated reading about people making a career out of building this form of income without relying on a 9 to 5 job. I finally decided to dive into it head first. While I have been successful along the way, there are a few things I wish I had done differently during the last 12 months. If I had the steps identified below in front of me last year—I would probably be a lot further along than I am today. Hopefully some people can use these steps to build a successful passive income portfolio—or a healthy lawn!
1. Prepare the Soil
Any good lawn care professional can tell you that the first step when growing in a new lawn is to prepare the soil. Whether you decide to sod or seed your yard, you first must rake and cleanup the area where you want your grass to grow. Whether you are using landscape designs to map out your yard or you use some wooden stakes to mark out your area—you have a plan in mind before starting.
The same can be said about creating passive income. You must first prepare the soil or in this case your plan for passive income generation. If you jump in head first without a solid plan or idea—you will wind up becoming frustrated and more than likely will give up. Any successful startup company will have a business plan that they build and grow from. If you are going to create passive income—you need to create a plan before starting. While you may not need a professionally written business plan to start, it is important to write down your ideas and goals. These goals will help to provide you direction and force you to stay focused.
2. Plant Grass Seed vs. Sod
Once you have prepared the soil for planting, the next step in growing a new lawn is to plant the new grass seed. You could also opt for a more expensive alternative and sod your yard. While this is a viable option, you need to consider the cost of the sod which is always more expensive than seeding. Another thing to keep in mind is that sod can be grown in a different soil at a sod farm than what you have in your yard. This could make for a difficult transition. On the other hand, sod is quicker to establish than seeding your yard so the choice is yours.
After you have documented your plan and goals for passive income generation, it is time to plant your new passive income stream. You could opt for the cheaper route and plant your passive income seed instead of sod. Planting passive income seeds could include writing online articles for sites like eHow, starting up a low-cost niche blog, or purchasing secure certificates of deposit that earn you guaranteed interest. The opportunities for seeding your passive income are endless!
You could also look to purchase (or sod) your passive income streams instead of creating them on your own. This is a viable option for passive income generation but one that is much more expensive and comes at a higher risk. If you purchase a passive income stream and it takes to your soil, then great—you have saved a lot of time and are on your way to making money. Some examples of purchasing your passive income streams include buying existing websites or blogs that are already earning ad revenue, lending out cash to borrowers through peer-to-peer lending, or purchasing dividend-producing stocks. All of these options cost upfront money, but could produce passive income in the future.
3. Water and Fertilize
After the seed has been planted or the sod has been laid in your yard, the hard part is over. Anyone who has ever laid a piece of sod on a 90 degree day can tell you that it is not a lot of fun. However, it is something that is very rewarding in the end. The next step in growing your new lawn is to devote your time to growing in your seed or helping your sod to establish roots into the soil. Either option requires dedication and some tender loving care. You should routinely water your seedlings or sod and give them some nutrients (or fertilizers) to help them grow strong.
Once all of your passive income streams have been planted, it is time to take care of them and help them grow. If you purchased a dividend-producing stock, then you need to setup a plan to reinvest your dividend payments back into the stock. This helps your passive income stream to grow big and strong. If you started a niche blog to generate passive income, then you need to constantly monitor and maintain your site at the beginning, until it can take off on its own. I could go on and on but I think you get the picture!
4. Plant More Grass Seed
Before your lawn becomes fully established, you may need to plant some new seed or lay another piece of sod in areas that don’t take. Often times a weak seedling or piece of sod may not take to your soil. You need to patch some areas after the rest of your lawn has grown in. Planting additional grass seed could occur for years depending on the quality of your soil and the care you put into it.
Some of your passive income streams may also need to be replanted. Don’t be surprised if some of them don’t take off like you expected. Hopefully the passive income streams that don’t take off for you were seedlings that you didn’t spend a lot of money to create. Regardless, either type of passive income stream has the potential to fail based on environmental factors outside of your control. If you purchased a bank stock that produced a high dividend in boom economic times, that same stock may have completely cut that same dividend during bust times. The point is that you need to identify these areas that need patching and create new passive income streams for your overall portfolio (or lawn).
5. Ongoing Maintenance
A year or two has gone by now and your new lawn is thriving. You have given it the proper care needed to grow strong and healthy. There is very little manual effort involved at this point in growing the yard, as it is mostly self-sufficient. Notice that I said—mostly? Anyone who has a home with a lawn knows that there is always ongoing maintenance of the yard. There is the weekly summer maintenance of cutting and watering. Then there is the annual maintenance of your lawn that includes aeration and fertilizer applications. The point is that even though you have spent your hard work and created a beautiful lawn, you still need to maintain it periodically—or at least hire someone to do it.
So you have built your passive income portfolio into a strong and healthy cash-producing machine. While the hard work is over, you still need to monitor your passive income streams to ensure they are still viable and healthy forms of income. This step may include reviewing the quarterly financial statements of your dividend producing stocks, following up on new advertisers for your niche blogs, or even rolling over an expired certificate of deposit into a new one. The point here is that even though I use the term ‘passive’—it can never be 100% passive. Even if you hire someone to manage your passive income portfolio, you wouldn’t be protecting your assets if you didn’t follow up from time to time on your manager.
If you are like most people these days, you are probably discouraged about the economy. Things are difficult out there and are expected to get worse. Why sit there and let the economy and businesses dictate your financial future? Creating passive income streams puts you in charge of your finances. Provided you build healthy and strong streams of income, you will outlast any recession or difficult economic environment. Let’s face it—we have droughts from time to time. Remember that beautiful lawn you created? If it is healthy and strong, it will bounce back from any drought. It may look rough and rugged during the bad times but will come out of it in the end.
Are you ready to start growing your new passive income streams?