Creating a Stream of Passive Income

We live in a world where social media feeds are flooded with people telling you how to work less and earn significantly more, many times in remote environments. Everyone wants to “get rich quick,” but most people don’t realize that creating a stream of passive income takes time, financial resources and lots of dedicated effort.

Passive income can be generated from various sources, including from investment dividends to real estate, to starting a new business or a side hustle. As you think about dedicating the time, energy and financial resources needed to create a passive income stream for yourself, here are some things you should consider.

Let’s talk about the things to consider regarding passive income.

• Determine what you are going to pursue and do your due diligence. Make sure you understand the industry you’re interested in by doing your research. Talk to people in that industry or field to get their feedback and advice.
• Create a business plan. How much money is needed to start? How many hours will you need to invest to get the passive income project or business up and running? When are you forecasted to start making passive income?
• Build out an advisory team. Starting any sort of business or passive income stream will require planning. Having a strong support system and experienced professionals on your side — such as a CERTIFIED FINANCIAL PLANNER™ professional ¬— can help you understand how this new income stream will impact you legally, financially and tax-wise.
• Establish the correct tax structure and banking accounts to align with your new business venture. Depending on what passive income project or business you choose, you may be required to form a new business structure and register the business with your city, county and state.
  It is financially crucial for effective tax planning to maintain a clear separation between your personal resources or expenses and the income from your new business stream.
• Protect yourself. Ensure you discuss with an attorney and a licensed insurance agent all the necessary structures and policies you should have in place before you begin your passive income project to protect yourself from liability both personally and professionally.

Let’s talk about the things not to consider, or the don’ts.

• Don’t try to do too many things at once. Focus on one source of passive income, build it out appropriately, and then expand from there to maximize its financial success.
• Don’t operate with the “set it and forget it” mentality. Make sure you are still investing the right time and resources into this new income source to ensure it remains sustainable.
• Don’t change your spending habits. It can be exciting to have a new source of passive income and while you may have set out to do this to enhance resources or change your lifestyle, you want to make sure you do this in smart, cautious ways.
• Don’t forget to save! New passive income should also mean new savings. Whether you opt to save into a retirement account or reinvest into a new income stream, working with a CFP® professional can help ensure you are establishing the right financial savings plan.
• Don’t buy in to all the social media hype around passive income. The $7 e-book or digital download claiming to change your life and show you how to master something like “affiliate marketing” may looking enticing but proceed with caution. Remember that if it sounds too good to be true, it might just be.

Building out a passive income stream can be an exciting and life changing event. It is just so important that you do it right and be smart about it! Working with a CFP® professional can help provide the guidance needed to set you on that path to financial success. Find your CFP® professional today.