The information age has brought down barriers and created a greater range of opportunities for everyone, but as a result, we all face increasingly stiff competition for jobs. At the same time, events in recent years have made our economic climate all but certain. Together, those two factors have made it difficult for most people to break even from working hard at a single job.
Your mileage can vary greatly when taking on a side hustle. Thus, passive revenue streams have emerged as a preferred option for anyone looking to supplement their income without facing diminishing returns from their effort. But before you dive into any specific activity to generate passive income, ask yourself: is it worth it? These considerations will help you dig deeper to answer that question.
Time investment
The term ‘passive’ can be applied quite loosely when describing a source of revenue. At a minimum, some amount of time investment is still required. This is true even of the simplest streams. Investing in the stock market requires you to spend time doing research and learning the ropes. If you already own property and would like to earn money by renting it out, you have to post the listing and set aside time for maintenance.
Tools such as Airbnb smart pricing can save a lot of time in this respect, but not all revenue streams afford that option. How much time do you have to spare, and how much of that must be invested in setting up your passive income? Quantify the value of your time, and you can determine if it would be better spent on other activities.
Sweat equity
The other half of the equation relates to effort and application, also known as ‘sweat equity.’ While many people like to think of passive income as a means of earning in their sleep, it’s never that easy or straightforward. You’ll often need to pay the cost of effort upfront or over the long term.
Any revenue stream requiring sweat equity must play to your strengths to become worthwhile. Do you love doing DIY projects around the house? Flipping lets you make money from your passion. Have some knowledge worth sharing, and find it easy to write all day?
You probably won’t break a sweat in terms of self-publishing an ebook or online course. But if you don’t already have the skills or love that sort of work, even something that’s generally considered simple (such as putting up a blog and making money through ads) will be a poor investment.
Entry costs
When you look around for opportunities to earn passive income, you’ll find that not all of them are immediately feasible. Some will require a higher cost of entry compared to others. Investing in real estate, for instance, can require significantly more capital than many people can afford to set aside.
Bear in mind the Pareto rule, which can be applied to personal finance and risk management. Roughly 80% of your money should be tied up to cover bills, emergencies, and other regular expenses. If it would take more than 20% of your income to get into a passive revenue stream, you’re taking on more potential risks than you could afford. Back up and reconsider. Something that requires less upfront investment will be better suited to your current means.
From these angles, you can better analyze any potential sources of passive income and ensure that whatever time, effort, and money you can spare will go into something worthwhile.
