“The poor and the middle-class work for money. The rich have money work for them.” If you have ever read Rich Dad Poor Dad by Robert Kiyosaki, you know that having “money work for you” is actually passive income. Passive income can be earned through financial investments, online endeavours or businesses. But can passive income really make you rich?
Can passive income make you rich? Passive income can make you rich if you have multiple, scalable, sustainable, income streams that demande little to no time to maintain and provide enough ROI (Return on Investment) to exceed your expenses.
How Much Passive Income Do I Need to be “Rich”?
The definition of “rich” is a game of perspective. What it means to be rich for one person can be very, very different to another. What’s important, however, is that you know what that number is. How much do you believe you need to be rich?
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One way to calculate this is by creating a dreamline, similar to what you can find in The Four Hour Work Week by Tim Ferris. Print the dreamline if you would like and grab a pen and paper to fill it out. (You may be surprised when you look back on it in the future).
What are your dreams and aspirations? How much will these dreams and aspirations cost? What are your current monthly costs and expenses? How much debt do you own? How much will your cost of living be, once you are living your dreams?
As important as it is to dream when you are thinking about the future you would like to build, it is just as important to be realistic about your current costs of living. If you do not know your current costs of living, it is imperative you download this free budget spreadsheet to get a general idea of your personal expenses.
Once you have a good idea of how much your wildest dreams will cost you, calculate your target monthly income. Have a look at how much life is currently costing you. That is the gap you need to fill in order to achieve the riches you desire.
Now that you know how much income you need, check out the extensive number of passive income ideas available on this website that cover how you can make money to achieve those dreams.
What Does it Take to Become Rich from Passive Income?
If you are thinking about ways to make passive income for wealth, it’s important to remember that you should eventually have multiple streams of revenue. The passive income stream you choose should also be scalable and sustainable, while not demanding too much of your personal time. This stream should also yield high ROI that covers and exceeds your expenses so you can live your dreams.
1. Rich People Have Multiple Sources of Passive Income
Rich people have multiple sources of passive income. For example, real estate tycoon Grant Cardone not only owns thousands of rental properties, he also sells online courses, runs a very active YouTube Channel and has multiple best-selling books.
These are all passive income sources. Even if he wrote his first book in 2008 (Sell to Survive), it still sells today, making him passive income as he becomes more and more known around the globe.
2. Rich People Have Scalable Sources of Passive Income
Scalable sources of income have a very high to an almost infinite potential of producing income. An indicator of scalable income is market size and the projected evolution of that market.
An example of scalable passive income could be Mark Zuckerberg’s Facebook. When Facebook was only available to college students at Harvard, the target market was very small and scalability was highly limited.
Once it was made available to the public in 2006, Facebook became very scalable. Now that it is available in over 50 languages, Facebook can target the entire planet’s population with an internet connexion and while generating revenue through multiple means (including ads and acquisitions, ie. Instagram).
3. Rich People Have Sustainable Sources of Passive Income
Sustainable income is a continuous stream of revenue that covers all the expenses, debt and needs of an individual or corporation. When analysing passive income streams, it is very important to be aware of seasonal income sources.
For example, if you are thinking of starting a Bike Rental Business, you should be aware that your income will fluctuate throughout the year if you are located in a country that has harsh winters. For most people located in the Northern Hemisphere, a Bike Rental Business will not be profitable in the Winter months and may even have to be temporarily closed in the Winter. In this case, this business model can be considered seasonal, and therefore somewhat unsustainable.
4. Rich People Have Sources of Passive Income That Demand Little to None of Their Time
This aspect of passive income is what interests most people – the fact that it eventually demands very little to none of your time. However, it is ultra important to realise that the initial time investment when building a passive income source can take months to many years. Anyone selling you a get quick rich scam is not telling the full truth.
Hundreds and thousands of hours of focused work are required to build sustainable passive income sources that will generate revenue for many years to come. This is true no matter what type of passive income you would like to generate.
If you are interested in Real Estate and have never purchased or sold a home before, you will have to spend thousands of hours learning about this industry. Some things will take longer than others to learn and apply. Thankfully, there are courses that can save you thousands of hours of research, trial and error.
If you would like to create a passive income website for example, according to Income School, it can take 14 to 15 months to create a blog that brings in 1,000$ of passive income. But when you think about it, it is highly worth your time. If you spend 15 months grinding, making incredible content for your blog following Income School’s tested formula, you can reap the benefits of your hard work for many years to come.
5. Rich People Have Sources of Passive Income With ROI That Exceeds Their Costs
The ROI, or Return on Investment, from your passive income source(s) should exceed your costs and initial debt. This is the money that you have made after you deduct all expenses and debt. If you followed the steps in the section entitled “But How Much Passive Income Do I Need to be ’Rich’?”, than you already know what that number needs to be for you to be rich from passive income.
Here are a couple other questions related to how passive income can make you rich, such as passive income for beginners and passive income ideas.
Can a Beginner Make Passive Income?
Beginners can make passive income which may seem like a utopian idea to beginners. However, it does exist, and is the way most rich people make money. Beginners must also realise that passive income takes months, and sometimes years of hard work to build to become effectively passive.
What are Some Passive Income Ideas?
Passive income ideas range from financial investments, to online endeavours to businesses. Passive financial investment ideas include Stocks, High Yield Savings Account, and Passive Real Estate. Online endeavors include Monetized Blogs, Print On Demand, Affiliate Marketing, and Digital Products. Whereas passive income business ideas may be ATM’s, Laundromats and Vending Machines.
It is important to set up these investments to be passive for them to become scalable, sustainable, income streams that demande little to no time to maintain. If you do not, a business, for example, can become a very active endeavour demanding much of your time.
Check out our detailed list of passive income ideas that are ranked by key criteria such as how passive they are, their startup costs, scalability, difficulty, time, risk and seasonality.