Passive Income:
How To Setup Multiple Streams of Income

Everyone knows you should have multiple streams of income.

So why do so many people struggle to set them up?

Here’s the truth:

Most people believe only millionaires have the resources to create passive income.

Well, today I’m going to prove them wrong.

Here’s the strategies I’m currently using to earn passive income in 2018.

About the Author

Hey guys, it’s Denis O’Brien.

I’m a Chartered Accountant and have a passion for personal finance.

Katie (my girlfriend) and I created Chain of Wealth to teach people how to find money success.

We’ve created content that’s been featured on Rockstar Finance and I’ll be speaking at Fincon in September 2018!

In this guide I’m going to show YOU how to setup passive income streams and help you find financial success!

Contents

Chapter 1:
What is Passive Income?

In this chapter we’ll start at the beginning.

First I’ll give you the textbook definition of passive income-

Then I’ll cover why people that tend to become millionaires focus on this type of income above all else (it’s really simple to do the same).

So what is passive income?

Passive income is defined by Investopedia as follows:

The most important part of the above definition is that you won’t be actively involved.

But to be fair-

This does not mean that there will be no effort involved in setting up multiple income streams.

Fun Fact: Only 20% of millionaires inherited their wealth. 

The other 80% are first generation millionaires.

Why Most Millionaires Are Master Side Hustlers

Like I mentioned before, millionaires focus their energy on growing the number of income streams they have while managing the streams they have already setup.

In fact, once an income stream is setup-

It normally takes very little effort to maintain the revenue stream relative to the time it would take to setup a new one.

When most people picture millionaires this is what they think of-

Expensive Cars
Lavish Properties
High Earnings Jobs

And while that may be the case for some-

Most millionaires are self-made (more on this later) and live very frugal lives. 

Tomas J. Stanley (who founded Affluent Market Institute), conducted an empirical study of the affluent and he published his findings in one of my favorite books, The Millionaire Next Door.

Without spilling the beans:

The rich are not who you think they are.

In fact, they are your average families that typically live well below their means and accumulate wealth over a long period of time.

They do not wear fancy clothes or drive expense cars (sorry to burst your bubble).

And while some people do get rich quickly, they typically end up blowing their money and end up worse than they were before.

So how do you start building up your passive income streams?

Well, that’s what chapter 2 is all about…

Chapter 2:
How to Create Lucrative Income Streams

There are passive income streams that pay well.

And there are also ones that’ll waste your time (and even money).

Being able to identify what types of passive income are right for you is a crucial step.

In this chapter, I’ll teach you how to tell the difference and set you up so you can find your own.

Not all side hustles are created equally.

Part of your job when trying to setup passive income for yourself is going to be to identify which income streams pay the best relative to their time involvement (both to setup and to maintain).

Put in another way:

You need to do a cost-benefit analysis with time as your cost and your potential income as the benefit.

A single income stream yielding an extra $1,000 per month that requires 10 hours upfront and 1 hour per month to maintain sounds great.

But if you’re already working 3 jobs you might be better off giving this one a skip.

It turns out – 

Identifying which revenue streams are better for you is the single most important step when deciding what to invest in.

Below are two steps you can uses to make any income stream passive.

But First: A Quick Recap of the 7 Different Streams of Income

Earlier I said that most millionaires have several streams of income.

Below are the 7 most popular streams of income:

Earned Income
Business / Side Hustle Income
Interest Income
Dividend Income
Rental Income
Capital Gains
Royalty Income

#1: Deciding What to FOCUS on

As you can see, above are some of the basic types of income streams you can put into place to grow your money.

And while this list is not comprehensive-

I would recommend starting with one or two income types from the categories above and build up more as time goes on and as you master them.
You’ll probably realize a few things from this list:

  1. These are income streams and not passive income streams.
  2. You probably already have some of the income streams in your current portfolio

One of my favorite books to read is Think and Grow Rich.

Apart from the book being outstanding-

The title gives away one of the secrets to unlocking wealth.

Your thoughts are a very powerful and often can be an untapped resource.

The reality of the income streams above is that you need to be creative to learn how to unlock additional income streams.

And while you don’t have to stick to the exact income streams above, it’s in your benefit to go after the low hanging fruit (more on this later).

One of the most important things to master in life is learnings how to FOCUS.

Being able to Follow One Course Until Success is critical to setting up passive income streams or you’ll be running around like a headless chicken.

Some income streams are a lot more passive than others.

Chapter 3 will deal with more hands-on income streams and Chapter 4 will deal with more passive ones.

#2: Converting Income into Passive Income (if applicable)

The fundamental difference between an income stream and a passive income stream is the nature of earning the money more specifically, the time commitment.

It is completely possible to turn an income stream into a passive income stream.

You might think that it is impossible (especially for something like your day job)-

However, once you’ve mastered an income stream, you can always hire someone to do it for you (for less than you earn from it) and focus on other revenue avenues.

I like to refer to this as passive income arbitrage.

“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” ~Chinese Proverb

Your primary goal in this step should be to determine which income streams are most important to you in the next 6 to 12 months and FOCUS on automating them as much as possible.

In the next chapter I’m going to teach you how to apply passive income arbitrage to non-passive income streams.

Chapter 3:
The Art of the Side Hustle

Let’s be honest with ourselves-

Side hustles are the blessing (and curse) of the millennial generation.

But that doesn’t mean that other generations haven’t been reaping the rewards of additional revenue streams for a long time…

If you’re looking for ways to make more money, then this chapter is a MUST.

While there’s a ton of passive income ideas out there, I’m going to go through three different strategies I recommend using.

Side hustles for the most part are not “passive income”, however the virtue of earning more money allows you to create passive income streams and thus learning how to diversify your income is critical.

Strategy #1: And the BEST side hustle is.... Just Google It.

In creating this article, I’ve been reading a ton of articles about side hustles.

There are thousands of posts created every week by personal finance bloggers around the topic and quite literally, the format of the writing is often the same:

“The Top [insert number] Side Hustles of [insert year]”

The Rockstar Finance directory is definitely a place you want to check out to find great personal finance content.

My honest thoughts?

Everyone has created a list of well thought out side hustles and although there are similarities between a lot of the articles, there was one common theme across them all.

The top side hustle is:

Erm…

Well, you could always just Google it?

Truth be told it turns out that there is not one “greatest” side hustle.

There are literally thousands of different ways you can make extra money.

One-Two Punch To Easy Income
  1. Write down a list of all your passions (stuff you enjoy doing outside of work).
  2. Try to type the following key phrases into Google and find a side hustle that looks great to you.
  • [your passion] + ways to make money
  • How to make money from + [your passion]
  • Top earning jobs for + [your passion]
  • inurl:[your passion] jobs

What I would recommend is jumping on any of the excellent resources out there and find a side hustle you are interested in and see if there are ways to make it passive.

Your primary goal in this first step should be to determine which income streams are most important to you in the next 6 to 12 months and FOCUS on automating them as much as possible.

Strategy #2: The Laundry Method

Katie recently created a post called the Laundry Method:

To save you the trouble of reading it- 

Here’s what makes the Laundry Method amazing:

You get paid for the routine tasks you were going to do anyway.

You should try to monetize anything that you have to do as part of your daily routine.

Such an example is going to work-

Next time you’re sitting in traffic, consider hopping onto a ride sharing app and taking passengers in to work with you.

It might make your commute slightly longer, but you got to work for free, or in some cases you even made money.

Here’s a video explaining the principle-

Strategy #3: Freelancing

Most people don’t realize just how lucrative freelancing can be.

In this day and age- freelancing can be as simple as pulling open a laptop and plugging away for a few hours, all from the comfort of your home.

 

There’s a ton of resources you can use to start freelancing, however the most important thing you need is a marketable skill.

Everyone is good at something.

You’ll probably find that you’re naturally better than most people at something else.

It could be graphic design, woodwork, sales, marketing, any variety of specializations.

Point is you need to be able to take your skill and monetize it.

In most cases, this should require a bit of polishing up on a skillset and finding the right medium to market yourself in.

 

Where to market yourself?

It’s probably not on some internet chat group-

Speak to people you already know.

The chances are someone needs a very particular skillset. The best thing you can do is network in person.

Chapter 4:
Make Appropriate Investments

As an investment professional, I know many things that the average investor does not know.

Now I’m not going to give you the latest trading tips, but I am going to teach you how to invest responsibly.

First off- everyone should be investing.

Period.

What Your Math Teacher Didn't Teach You In School

It doesn’t take a genius to understand the more money you save the more you’ll have in the future.

But just how much of a difference does it really make?

The graphs below demonstrates the difference between investing as follows:

  1. Jill invests $100 per month from 20 years old.
  2. John invests $200 per month from 30 years old.

In both scenarios, let’s assume that both Jill and John stop working at 65 years old and they never increase their investments.

Jill & John both invest in the S&P 500 and enjoy an average compounding of 8% per annum.

Now, I’m sure you’ll be quick to say-

“Well if Jill invests for 10 years longer of course she’ll have more money.”

But that’s not what I’m demonstrating here.

Consider the following-

Jill invested as follows: $100 * 12(months) * 45 (years) = $54,000.

$100 per month from 20 Years Old

While John invested as follows: $200 * 12 (months) * 35 (years) = $84,000.

$200 per month from 30 Years Old

Now, at retirement age (65 years old):

  • Jill saved up $530,000 while only contributing $54,000 (981.4% return)
  • John saved up $460,000 while contributing $84,000 (547.6% return)
John invested a lot more money than Jill, yet he got a significantly worse return.

This brings me to my first principle- 

You need to start investing as early as you can. Even if it’s smaller dollar amounts.

Why Asset Allocation is Extremely Important

A common mistake many inexperienced investors make is they assume that we all have the same investing needs.

Some people will need to draw income off their investments and therefore cannot afford to take on as much risk with their money, while others will draw no income and can take on additional risk.

This is called the risk appetite of the investor.

This should be an integral part of constructing a well diversified and balanced portfolio.

Another thing that needs to be added into the equation is your age.

Sure, age is just a number (or so I keep telling myself that)-

But you should shift your asset allocation to lower risk assets as you get older.

This is actually something that your fund manager should do for you.

However, if you’re more hands on investor you should be doing this yourself gradually.

Ultimately when it comes down to investing-

The worst thing you can do is not invest.

Chapter 5:
Track Your Progress

Every personal finance blogger worth their salt will push you to start budgeting.

The B word is something most people know they should do, but most people don’t.

And yet in this day and age, it’s super simple to track your spending and now you have a new found category – Passive Income!

Everyone hates the concept of a budget.

But it’s probably one of the most effective ways to become wealthy.

Why?

Because it’s directly linked to goal setting (I’ll explain why below).

Why You REALLY Need a Budget

I’m not going to lie to you-

I only really got serious about budgeting in the last 6 months.

Now I’m a finance guy by profession-

But that didn’t stop me from making all the excuses in the book as to why I didn’t need to budget.

Looking back I feel sick at how much money I wasted and didn’t realize I was leaving on the table.

If you’re in this boat, don’t feel bad. 

According to this study by the USBank, only 41% of Americans are actually budgeting.

Budgeting is a crucial skillset that should be taught in school from a young age. If you don’t budget already you need to start as soon as possible.

I mentioned above that it’s similar to goal setting.

Well, did you know that by simply writing down your goals and regularly reviewing them with other people you’re exponentially more likely to achieve them?

You might say ok great, but I’m here to get rich by creating multiple income streams, not to run through a quick self-help crash course.

And I get that.

But given above, I’m sure you’ll agree that you definitely should have clearly defined goals.

Remember- this is a long term strategy, you need to be looking towards the future. 

The more specific you can make your goals the better.

Katie recently created a free budget template which you can download from that link.

But there are also loads of apps you can use as well such as Mint, You Need a Budget and Personal Capital which link to your bank accounts.

Be Accountable and Honest With Yourself.

I mentioned in Chapter 3 that you can turn almost anything into passive income.

But here comes the kicker:

You need to be honest with yourself and determine if what you’re doing is getting the results you’re looking for.

Are you investing too much time into generating a passive income stream than what it’s worth or is your time better spent elsewhere?

Ultimately, this boils down to you and there is no hard and fast rule as everyone is in a different financial position.

If you decide something is taking up too much time, stop it and do it quickly.

You need to be able to react fast when you realize something isn’t worth it, that way you can spend your time on other activities.

Chapter 6:
Bonus Tips, Strategies and Real Life Examples

There’s a ton of stuff to learn when it comes to passive income.

And nothing explains things better than an example.

These are my tried and true passive income strategies that can help you earn more money.

Time (Can Be) Your Friend

One of the most important money lessons you can learn is that money is a long term thing.

Whether you’re trying to pay off debt, save for a down payment or build up your credit, you need to start as soon as you can to achieve your goal.

The reason for this is COMPOUNDING!

"Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it. Compound interest is the most powerful force in the universe."

Don’t get left behind by putting off money decisions.

Side Hustling Can Make a Massive Difference

Although side hustling is NOT passive income, it can directly lead to increased passive income streams by having more disposable income available to you.

Becoming a master side hustler can take a ton of time and planning.

One of my blogger friends, Kevin from Financial Panther is a master side hustler.

Here’s one of his most recent side hustles reports for June 2018-

Sure, $2k is not enough to live off, however that’s over and above his standard income (as a lawyer), and if he’s earning that every month he’s boosting his annual income by over $25,000!

The Final Lesson

The formula below is of the upmost importance for your income earning potential.

You only have a limited amount of hours in your lifetime.

Money = Rate x Hours

Why don’t you try to negotiate a raise at work or with your next client?

Even if you get 5% or 10% more money, you’ll be substantially better off than what you were before (and you’ll probably be doing the exact same work).

Pretty simple, huh?

Now It's Your Turn

Did you learn anything new or have any take aways from this passive income guide?

Or maybe you have a question.

Either way, leave a comment below right now.

16Comments

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  1. Looks great dude! Super informative. I’m a huge fan of Brian Dean (BackLinko) and your post format looks amazing like his (total complement and I’m super jealous cause I’m terrible at that stuff).

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  2. I side hustled to full-time, and now I’m working on the whole “passive” side of things. Working on a business model that scales better and saving up for my first real estate investment!

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  3. Creative way to explain one of the hottest topics that commonly comes up in almost every discussion about how to build and maintain wealth! I love the simplicity of it–nice job Dennis!

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  4. Wow you put a ton of time and effort putting this together!

    Royalties are definitely a more advanced level of passive income that takes establishing a brand first. Most people will probably not get to this level due to the time and commitment involved. Pretty much full time self employment to start but the dividends can be enormous.

    For example after Obama became President he wrote books about his his role and autobiographies and they have grossed enormously just from royalties which he reinvests back into treasuries. That’s money making money.

    Although he was well educated he was only middle class before he was President and now of course today after leaving office he’s more rock star celebrity status. He’s even got the socialite glow.

    Looking forward to hear your presentation!

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      Royalties definitely are a more advanced topic. I love your example and I think very often it is about building that brand.

      I’m going to be adding in some more examples into the last chapter to give people some additional ideas.

      Thanks for your feedback!

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