Passive Income

time and money

It can be argued that money is our most powerful tool. I want to share tips on how you can earn passive income and leverage your time and money. Money can be simply explained as a tool of value used in exchange for time, goods, services, and experiences. People who understand this and the value of leverage can do more with the time they have and the money they’re already spending. As a business owner who specializes in working with entrepreneurs, I’ve learned how to maximize the financial resources we have at our disposal.

Passive income can be earned while you sleep. It can be free or discounted travel for vacations or business, and it can even help you save for your kids’ education.

Sounds perfect, right? After reading books, like E-Myth (twice in a month); the Rich Dad Poor Dad series (multiple times); and, most recently, The 4-Hour Workweek (read it on the beach), it became clear that the wealthy earn their money differently, and I wanted to know how they did it! What I learned is that passive income can be generated in a variety of ways, most taking a lot of up-front time and effort. So while having passive income is great, it takes a lot of work to get started, which proves the old adage “anything worthwhile in the end takes some hard work in the beginning.”

The traditional way people generate income is to trade time for money. The very nature means the potential is limited because we can only work so many hours in a week and receive only so much an hour. Passive income puts this concept on its head. Instead of being limited by time, leverage it. Use your time to create something that will not be limited in earning potential by time.

To quote Pat Flynn, a very successful passive income expert, “We don’t have to trade our time for money on a one-to-one basis. Instead, we invest our time up front, creating valuable products and experiences for people, and we reap the benefits of that time invested in creating these products and experiences later. It’s not easy. I just want to make sure that is clear.” Nicely summed up—work now, reap the benefits later. Implementing this strategy correctly means you can actually start to work less but earn exponentially more. EQUATION: smart work + time now × risk = you on a beach.

The list of ways to generate passive income is almost endless.

• Invest in real estate.

• Own a portfolio of dividend-producing investments.

• Earn royalties from creative works (books, music, screenplays).

• Earn revenue from your website, blog, or social media.

• Create an app.

• Patent royalties and licensing fees.

• Invest in businesses.

There is a common theme throughout all the ways the wealthy generate passive income. All require you, in the beginning, to trade your time for money while building your passive-income machine. Eventually, you’ll be able to leverage that time into exponential passive income while being able to work less and less. The necessary attitude is a willingness to take some risk, work hard, and create something of value. If you put good in, you’ll get good out. Creating something of value that improves people’s lives and then marketing it to an audience that has critical mass and wants what you’re providing seems to be the secret to creating passive income.

Saving for your children’s college education has become even more important as tuition rates continue to rise. A college savings plan called UPromise can help. UPromise, sponsored by Sallie Mae, allows you to earn cash back on money you’re already spending on a wide variety of things—from buying groceries to travel. It’s a free program that credits money to a savings account dedicated to education when you register credit cards with their program. Monies earned can be deposited into a 529 college savings plan or other savings account (possibly eligible for up to a 10 percent annual match), sent to pay down existing student loans, or mailed to you as a lump sum check. I recently went to dinner with my family and used one of my UPromise-registered credit cards. A few days later, I received an email stating that money had been credited to my college savings account from that dinner bill. I saved for my kid’s education by eating!

Credit scores are important, and you may wonder how leveraging credit card expenditures can affect your credit score. Over the last five years, my wife and I have taken out and then canceled approximately 50 credit cards. Our credit scores have routinely gone up. Paying off your credit cards in full and then canceling them actually helps your overall credit score. You can track your credit scores for free using CreditKarma or WalletHub. Both track all of your credit-related information in one place. CreditKarma updates weekly, while WalletHub updates daily. Using one of these services will alert you to any changes, and sometimes you will receive special credit card bonus offers because you are using the service.

One trick to managing your overall credit score is to keep ONE credit card open indefinitely. The length of your credit history brings the overall average up. You don’t have to actually use the card, but keeping it open is important.

Knowing your cash flow patterns, whether from traditional income or passive income, is instrumental in being able to use the strategies outlined here. Cash flow is an extremely important part of your overall financial planning. Know what you’re spending and where you’re spending it.

Money is a tool and can be used to have more fun and to get more out of life now and in the future—for you, your business, and your family. Make your money work just as hard for you. You worked for it. You earned it. Now leverage it!

Photograph by Eric Tadsen

Derek Notman is a Certified Financial Planner® and Founder of Intrepid Wealth Partners LLC.