The 3 Levels of Passive Income

The 3 Levels of Passive Income

Passive income levels picture of happy couple

Passive income means getting paid without trading your time for money. I like to call this leveraged income, because there is work involved.

You work hard up front to create an asset that will pay you over and over. The best kinds of passive income can scale to significant amounts.

Everyone should have some type of passive income to save more money and build wealth. Make creating passive income a priority in your life.

Imagine waking up each morning and having hundreds of dollars  deposited into your bank account over night. Without working for an hourly wage or stressing over a job you hate.

Is passive income real? Yes.

Does it take work to generate passive income? Absolutely.

(Thats why I call it leveraged income, not passive income. But we'll stick with "passive income" for this article, since it's more common.)

Depending on the level of passive income you target, it doesn't have to take forever.

Here are the 3 levels of passive income and ideas on how to get there.

Related Post: Types of Income Explained

Level 1: Pay Monthly Bill(s) with Passive Income

Passive income levels - picture of woman biting pencil

The first level of passive income is the ability to pay one or more of your monthly bills.

You create a recurring income source that offsets a recurring expense.

Many Americans struggle to just get by each month. Adding an extra $100-$500 in passive income will make a big impact.

Here are 7 things you could pay with $100-$500 extra each month:

  • Your water bill
  • A car payment
  • More on your student loan
  • Your internet + TV service
  • Extra money on your mortgage
  • A high-interest CC balance
  • Your grocery bill

Paying one of your bills through passive income can take as little as 6 months. Plan on spending 12 months, though, to generate enough passive income to pay a monthly bill or two.

Review: Pay Monthly Bill(s) with Passive Income


Years to Reach

Scale Potential 

Difficulty

Top 3 Ideas:

  1. 1
    Airbnb.com
  2. 2
    Amazon Associates
  3. 3
    Monthly workshop

Have a spare bedroom?  Rent it out. List it on Airbnb.com for a few days each month and pay a bill or two with the income.

Amazon Associates lets you get paid a commission for recommending products, books and other goodies you love.

Teach a local group how to get a specific result or outcome. Spend two hours once a month teaching 15 students. At $50 each, that's $750 of leveraged income.

Level 2: Replace My Salary with Passive Income

Passive income levels - picture of office cubicles

The second level of passive income is to replace your salary with passive income sources. 

Replacing your salary with passive income means you can quit your job and control your schedule. This can be done in a year or less, but you should plan on working hard for 2-3 years to reach this level of passive income.

This level of passive income should also include saving money in retirement accounts, like a Roth IRA, traditional IRA or SEP IRA. And of course your emergency fund.

Review: Replace My Salary with Passive Income


Years to Reach

Scale Potential 

Difficulty

Top 3 Ideas:

  1. 1
    Online course
  2. 2
    Modest membership website/forum
  3. 3
    Personally owned rental real estate

Build an automated online course to teach students a specific outcome or result. Create a marketing funnel that sells the course on auto-pilot.

Provide a private membership website around a specific topic or service. At a cost of $50/mo, having 200 members will earn you $10,000 per month.

Owning your own rental properties can provide a monthly income and a growing asset. Both residential and commercial properties can be good.

Level 3: Build or Buy More Income Streams Using Passive Income

Passive income levels - picture of traveling

The third level of passive income is when you have enough current passive income that you can build or buy additional income streams.

Your bills are taken care of. You're fully funding your retirement accounts. Now it's time to scale even more.

You'll need a team to outsource the day to day operations or mundane administrative work.

You become a true business owner. You work on the businesses, not in them.

Having multiple passive income streams means you're more diversified and can survive an economic downturn. You can then buy more income producing assets at a a discount.

You need to optimize for time, so you can fully experience the world with your family and friends. And give back to causes you care about.

Review: Build or Buy More Income Streams Using Passive Income


Years to Reach

Scale Potential 

Difficulty

Top 3 Ideas:

  1. 1
    Multiple online courses or course businesses
  2. 2
    Large membership website/forum
  3. 3
    Portfolio of 6-8 moderate online businesses

Develop a library of complimentary courses or online course businesses in multiple topic areas. 

A large membership website or forum can generate significant income. At 1,000 members charging $50/mo, the revenue is $50,000 per month. 

Buying or building a group of income producing online businesses makes your revenue more diverse. Between 6-8 businesses would be ideal.

Now It's Your Turn

Which of the three passive income levels are you after?

What's holding you back?

Thanks for reading!

- Tommy

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