Ask for all or a portion of payment up front: There are many products and services that you pay for on delivery or in advance. So why give your customers months to pay up? Asking for at least a deposit up front is a great way to jump-start your cash flow. And if you establish the policy fairly and properly, it shouldn’t alienate good customers.
Sign up for a merchant account: If you already have a merchant account, encourage customers to use this option more often. Sure, you pay a fee. But for speedier cash flow, credit cards can’t be beat. You get your money fast and customers are accustomed to paying with plastic.
Pay bills only when you have to: That doesn’t mean you should be late; only that you needn’t be early. For bills due net 30, for example, why pay at day 12? Paying right at the deadline keeps vendors happy, but will help your own cash flow crunch.
Manage receivables more closely: Create a detailed “aging” schedule of what you are owed, by whom and for how long. Call overdue accounts quickly, focusing first on the largest amounts due. Ask if there is anything you can do to expedite payment.
Create a cash-in/cash-out budget: Note specific due dates for payables as well as receivables. Although the balance between the two won’t always be predictable, the budget can give you a fairly accurate picture of where your business stands in the cash flow derby.
Revamp your invoice: A messy, unclear or inaccurate invoice is far less likely to be paid. Make sure that what you send out reflects care and attention to detail - just as you would in providing your product or service.
Offer a discount for overdue receivables: This can bring some quick cash in the door, but play this card only after you’ve called the customer to ask for full payment. Set a short deadline and make it a sweet enough deal (10-20%) for them to respond.
Accelerate your invoicing: If you invoice customers, do it quickly. Invoices can be prepared in advance, and sent out at the earliest possible moment. More and more small businesses are sending invoices as PDF files via email. This can save days of postal delays. Ask customers if they will accept invoices this way.
Cut expenses: Accelerating positive cash flow is great for your business, but slowing the negative cash flow has the same effect.
Set up a commercial credit line: Do this when times are good. Then tap the line when the need arises.
Tuesday, February 5, 2008
Cashflow Management Tips
Good cashflow management is at the heart of all successful businesses.
That’s why we have put together our top tips to help you manage your cashflow effectively.
1. Monitor Your Income and Expenditure
Make sure that you monitor your income and expenditure carefully so that you can see easily who owes you money, and who you owe money to. You can do this by keeping an invoice book and records of payments you have received on an Excel spreadsheet. If you do not monitor your cashflow you have no hope of managing it.
2. Budget Carefully
Budget carefully so that you do not spend more than you can afford to and so you know when big expenses are coming up.
3. Build Relationships with Good Customers
The saying, ‘old is gold’ is particularly relevant when it comes to cashflow management. If you have a customer who always pays promptly make sure that you build a good relationship with him/her by providing first rate customer service. Remember, it’s easier and cheaper to keep and existing customer than it is to find a new one.
4. Know Your Break Even Point
Make sure that you know what your break even point is. If your income is higher than your expenditure you are in profit and the way round means you are making a loss. If your income and expenditure are balanced you have reached your break even point.
5. Pay Bills On Time- Not Before
Don’t pay your bills before they are due. Having said this, you should always pay on time as failure to do so can damage your reputation and ability to negotiate good payment terms.
That’s why we have put together our top tips to help you manage your cashflow effectively.
1. Monitor Your Income and Expenditure
Make sure that you monitor your income and expenditure carefully so that you can see easily who owes you money, and who you owe money to. You can do this by keeping an invoice book and records of payments you have received on an Excel spreadsheet. If you do not monitor your cashflow you have no hope of managing it.
2. Budget Carefully
Budget carefully so that you do not spend more than you can afford to and so you know when big expenses are coming up.
3. Build Relationships with Good Customers
The saying, ‘old is gold’ is particularly relevant when it comes to cashflow management. If you have a customer who always pays promptly make sure that you build a good relationship with him/her by providing first rate customer service. Remember, it’s easier and cheaper to keep and existing customer than it is to find a new one.
4. Know Your Break Even Point
Make sure that you know what your break even point is. If your income is higher than your expenditure you are in profit and the way round means you are making a loss. If your income and expenditure are balanced you have reached your break even point.
5. Pay Bills On Time- Not Before
Don’t pay your bills before they are due. Having said this, you should always pay on time as failure to do so can damage your reputation and ability to negotiate good payment terms.
Monday, February 4, 2008
How to Create an Automatic Savings Plan
Do you have a savings account, yet find it difficult to find money to deposit into it? This isn’t an uncommon problem and most people find it hard to save. Generally when you receive income it is either directly deposited into your checking account or you go to the bank to make a deposit. Typically these funds head straight to the checking account so they are available to pay the seemingly endless stream of bills.
Automatic Saving is Easy
Thanks to modern technology it is very easy to set up an automatic savings plan.
If you currently have direct deposit through your employer you will find the easiest way to establish this is to have part of your paycheck directly deposited into your savings account as well. It doesn’t matter if it is $10 or $500, simply having this happen automatically will ensure money is saved every time you are paid.
If you don’t have direct deposit there is still an easy option available if you do your banking at a local branch. Typically your bank can link checking and saving accounts together and establish automated transfers between accounts at a regular interval that you select. So if you cash your paycheck every other Friday you could establish an automatic transfer of a set amount of money from checking to savings to coincide with this deposit.
Automatic Saving is Easy
Thanks to modern technology it is very easy to set up an automatic savings plan.
If you currently have direct deposit through your employer you will find the easiest way to establish this is to have part of your paycheck directly deposited into your savings account as well. It doesn’t matter if it is $10 or $500, simply having this happen automatically will ensure money is saved every time you are paid.
If you don’t have direct deposit there is still an easy option available if you do your banking at a local branch. Typically your bank can link checking and saving accounts together and establish automated transfers between accounts at a regular interval that you select. So if you cash your paycheck every other Friday you could establish an automatic transfer of a set amount of money from checking to savings to coincide with this deposit.
You Don’t Get Do Overs at Retirement
You’re playing a game and all at once someone shouts “Do over” and everyone starts the game over. You get “do overs” in quite a few things in life but retirement planning isn’t one of them. Whatever decisions you make now you will have to live with once you retire. Think about your retirement and what you might want to be doing when you reach 55, 60, or older. Do you want to be scratching out a living or do you want to be enjoying life? What you do right now could dictate your future retirement.
No matter what your age, this isn’t something that should wait. Every year you put off stashing something away for retirement, you are losing money. The sooner you start, the less you will have to set aside each pay to have a nice retirement nest egg.
What can you do?
There are lots of ways you can start saving for your retirement. If your company has a retirement plan, sign up and contribute as much as you can. Put aside a percentage of your pay check each month to invest in an IRA. If you invest in a traditional IRA, you might be able to take a tax deduction for the amount. If you invest in a Roth IRA, you won’t get a tax deduction but your earnings will be tax-free. There are no tricks to retirement planning and saving, it’s something you should do on a regular basis. Even if you have a company retirement plan, it’s a good idea to have some personal saving in an IRA or similar saving vehicle.
Bottom line:
Gone are the days when a company had a guaranteed pension plan to supplement your social security benefits. Gone are the days when a retired person could actually live on the payout from a company pension and social security benefits. We are accustomed to a lifestyle that commands us to have 80 percent to 90 percent or more of our annual income set aside for our retirement. Given the longevity of today’s population, you could live for 20 or 30 years after you retire so you will need to have quite a nest egg put aside. If you are planning to retire in the lifestyle you have grown accustomed to living, you can’t do a “do over”, you have to start planning and saving right now.
No matter what your age, this isn’t something that should wait. Every year you put off stashing something away for retirement, you are losing money. The sooner you start, the less you will have to set aside each pay to have a nice retirement nest egg.
What can you do?
There are lots of ways you can start saving for your retirement. If your company has a retirement plan, sign up and contribute as much as you can. Put aside a percentage of your pay check each month to invest in an IRA. If you invest in a traditional IRA, you might be able to take a tax deduction for the amount. If you invest in a Roth IRA, you won’t get a tax deduction but your earnings will be tax-free. There are no tricks to retirement planning and saving, it’s something you should do on a regular basis. Even if you have a company retirement plan, it’s a good idea to have some personal saving in an IRA or similar saving vehicle.
Bottom line:
Gone are the days when a company had a guaranteed pension plan to supplement your social security benefits. Gone are the days when a retired person could actually live on the payout from a company pension and social security benefits. We are accustomed to a lifestyle that commands us to have 80 percent to 90 percent or more of our annual income set aside for our retirement. Given the longevity of today’s population, you could live for 20 or 30 years after you retire so you will need to have quite a nest egg put aside. If you are planning to retire in the lifestyle you have grown accustomed to living, you can’t do a “do over”, you have to start planning and saving right now.
Top Ten Financial Tips
1. Get Paid What You're Worth and Spend Less Than You Earn
It sounds simplistic, but many people struggle with this first basic rule. Make sure you know what your job is worth in the marketplace, by conducting an evaluation of your skills, productivity, job tasks, contribution to the company, and the going rate, both inside and outside the company, for what you do. Being underpaid even a thousand dollars a year can have a significant cumulative effect over the course of your working life.
No matter how much or how little you're paid, you'll never get ahead if you spend more than you earn. Often it's easier to spend less than it is to earn more, and a little cost-cutting effort in a number of areas can result in big savings. It doesn't always have to involve making big sacrifices.
2. Stick to a Budget
One of my favorite subjects: budgeting. It's not a four-letter word. How can you know where your money is going if you don't budget? How can you set spending and saving goals if you don't know where your money is going? You need a budget whether you make thousands or hundreds of thousands of dollars a year.
3. Pay Off Credit Card Debt
Credit card debt is the number one obstacle to getting ahead financially. Those little pieces of plastic are so easy to use, and it's so easy to forget that it's real money we're dealing with when we whip them out to pay for a purchase, large or small. Despite our good resolves to pay the balance off quickly, the reality is that we often don't, and end up paying far more for things than we would have paid if we had used cash.
4. Contribute to a Retirement Plan
If your employer has a 401(k) plan and you don't contribute to it, you're walking away from one of the best deals out there. Ask your employer if they have a 401(k) plan (or similar plan), and sign up today. If you're already contributing, try to increase your contribution. If your employer doesn't offer a retirement plan, consider an IRA.
5. Have a Savings Plan
You've heard it before: Pay yourself first! If you wait until you've met all your other financial obligations before seeing what's left over for saving, chances are you'll never have a healthy savings account or investments. Resolve to set aside a minimum of 5% to 10% of your salary for savings BEFORE you start paying your bills. Better yet, have money automatically deducted from your paycheck and deposited into a separate account.
6. Invest!
If you're contributing to a retirement plan and a savings account and you can still manage to put some money into other investments, all the better.
7. Maximize Your Employment Benefits
Employment benefits like a 401(k) plan, flexible spending accounts, medical and dental insurance, etc., are worth big bucks. Make sure you're maximizing yours and taking advantage of the ones that can save you money by reducing taxes or out-of-pocket expenses.
8. Review Your Insurance Coverages
Too many people are talked into paying too much for life and disability insurance, whether it's by adding these coverages to car loans, buying whole-life insurance policies when term-life makes more sense, or buying life insurance when you have no dependents. On the other hand, it's important that you have enough insurance to protect your dependents and your income in the case of death or disability.
9. Update Your Will
70% of Americans don't have a will. If you have dependents, no matter how little or how much you own, you need a will. If your situation isn't too complicated you can even do your own with software like WillMaker from Nolo Press. Protect your loved ones. Write a will.
10. Keep Good Records
If you don't keep good records, you're probably not claiming all your allowable income tax deductions and credits. Set up a system now and use it all year. It's much easier than scrambling to find everything at tax time, only to miss items that might have saved you money.
It sounds simplistic, but many people struggle with this first basic rule. Make sure you know what your job is worth in the marketplace, by conducting an evaluation of your skills, productivity, job tasks, contribution to the company, and the going rate, both inside and outside the company, for what you do. Being underpaid even a thousand dollars a year can have a significant cumulative effect over the course of your working life.
No matter how much or how little you're paid, you'll never get ahead if you spend more than you earn. Often it's easier to spend less than it is to earn more, and a little cost-cutting effort in a number of areas can result in big savings. It doesn't always have to involve making big sacrifices.
2. Stick to a Budget
One of my favorite subjects: budgeting. It's not a four-letter word. How can you know where your money is going if you don't budget? How can you set spending and saving goals if you don't know where your money is going? You need a budget whether you make thousands or hundreds of thousands of dollars a year.
3. Pay Off Credit Card Debt
Credit card debt is the number one obstacle to getting ahead financially. Those little pieces of plastic are so easy to use, and it's so easy to forget that it's real money we're dealing with when we whip them out to pay for a purchase, large or small. Despite our good resolves to pay the balance off quickly, the reality is that we often don't, and end up paying far more for things than we would have paid if we had used cash.
4. Contribute to a Retirement Plan
If your employer has a 401(k) plan and you don't contribute to it, you're walking away from one of the best deals out there. Ask your employer if they have a 401(k) plan (or similar plan), and sign up today. If you're already contributing, try to increase your contribution. If your employer doesn't offer a retirement plan, consider an IRA.
5. Have a Savings Plan
You've heard it before: Pay yourself first! If you wait until you've met all your other financial obligations before seeing what's left over for saving, chances are you'll never have a healthy savings account or investments. Resolve to set aside a minimum of 5% to 10% of your salary for savings BEFORE you start paying your bills. Better yet, have money automatically deducted from your paycheck and deposited into a separate account.
6. Invest!
If you're contributing to a retirement plan and a savings account and you can still manage to put some money into other investments, all the better.
7. Maximize Your Employment Benefits
Employment benefits like a 401(k) plan, flexible spending accounts, medical and dental insurance, etc., are worth big bucks. Make sure you're maximizing yours and taking advantage of the ones that can save you money by reducing taxes or out-of-pocket expenses.
8. Review Your Insurance Coverages
Too many people are talked into paying too much for life and disability insurance, whether it's by adding these coverages to car loans, buying whole-life insurance policies when term-life makes more sense, or buying life insurance when you have no dependents. On the other hand, it's important that you have enough insurance to protect your dependents and your income in the case of death or disability.
9. Update Your Will
70% of Americans don't have a will. If you have dependents, no matter how little or how much you own, you need a will. If your situation isn't too complicated you can even do your own with software like WillMaker from Nolo Press. Protect your loved ones. Write a will.
10. Keep Good Records
If you don't keep good records, you're probably not claiming all your allowable income tax deductions and credits. Set up a system now and use it all year. It's much easier than scrambling to find everything at tax time, only to miss items that might have saved you money.
Friday, February 1, 2008
Where is Blogging for Money ‘Passive’?
Perhaps the main area of where blogging has an element of ‘passivity’ to it in how it can earn an income is when it comes to your archives.
I’ve been blogging now for close to 4 years and in that time would have published over 20,000 posts across my own blogs. While the writing of these posts is anything but passive (more on that later) the great thing about it is that even after those posts drop off the front page of a blog they continue to have earning potential.
In fact as I look at the most popular pages of my blogs (and the ones that earn the most) - the vast majority of my income comes from my archives - posts I’ve not thought twice about for months, if not years.
In that regard - that income has a passive element to it - old posts are like an investment that continues to earn an income into the future.
Set and Forget Income Streams - One of the great advances from the last few years in generating an online income has come from the improvement of advertising networks like AdSense which allow publishers to add a snippet of code to their blogs that will automatically run ads on the blog over time.
While you can (and should) definitely work on your ad optimization - many bloggers get to a point with their ads that they are able to largely set and forget them. The ads will earn an income and the cheques (or direct deposits) will appear each month. There is no searching for or negotiation with advertisers - the system handles it all for you. This takes a load off many publishers minds and allows them to concentrate on other activities of running a good blog.
Put the idea of Archives and set and forget income streams together and there is an element of passivity to blogging for money. Add to it that money made from blogging doesn’t depend upon you being ‘open for business’ to make money (ie I make more money during the hours that I’m asleep than when I’m awake due to my time zone) and I can understand why people might describe it as a passive income
I’ve been blogging now for close to 4 years and in that time would have published over 20,000 posts across my own blogs. While the writing of these posts is anything but passive (more on that later) the great thing about it is that even after those posts drop off the front page of a blog they continue to have earning potential.
In fact as I look at the most popular pages of my blogs (and the ones that earn the most) - the vast majority of my income comes from my archives - posts I’ve not thought twice about for months, if not years.
In that regard - that income has a passive element to it - old posts are like an investment that continues to earn an income into the future.
Set and Forget Income Streams - One of the great advances from the last few years in generating an online income has come from the improvement of advertising networks like AdSense which allow publishers to add a snippet of code to their blogs that will automatically run ads on the blog over time.
While you can (and should) definitely work on your ad optimization - many bloggers get to a point with their ads that they are able to largely set and forget them. The ads will earn an income and the cheques (or direct deposits) will appear each month. There is no searching for or negotiation with advertisers - the system handles it all for you. This takes a load off many publishers minds and allows them to concentrate on other activities of running a good blog.
Put the idea of Archives and set and forget income streams together and there is an element of passivity to blogging for money. Add to it that money made from blogging doesn’t depend upon you being ‘open for business’ to make money (ie I make more money during the hours that I’m asleep than when I’m awake due to my time zone) and I can understand why people might describe it as a passive income
Property Investment
My first house was a 2 year old 3 bed semi-detached property on a fairly new estate. The house had been repossessed by the bank and the estate agent had it on the market for a few months with little interest. The house was on the market for £80k so I put an offer in for £78k It was a price that I could comfortably afford. To my disappointment the agents already had a higher offer and were going to proceed with that one. I was quite dissappointed and carried on my search for a house.
About 3 weeks later the same agents called me back to ask me if I was still interested in the property as their buyer had pulled out. Of course I was still interested, she then proceeeded to ask me if I would like to pay any more for the house? Well of course not! I asked her if I needed to pay any more to secure the house and she said NO. I think she was a little inexperienced as an agent, but a very nice lady. And bingo that was my first purchase.
Boom, Boom, Boom!!
I lived in that house for a couple of years, doing some small home improvements to the garden, bedrooms etc. By mid 2003 the UK had experienced a boom in house prices, the average UK house price then was £132,589 (Halifax data). The house that I bought was now worth about £110k estimated by comparing average sales of similar properties in the area. I was more than delighted with this as I could sell the house and make a cool £30k in profit. The profit was on paper but I’d never made so much money without doing too much before. I was hooked I wanted more, more, more!
I wanted to repeat this sucess and went about looking for books that could teach me, I was hungry for more information and quickly put together a small library of property investment books. Check my recommended book list. After reading these books I put together a plan to buy more houses. I bought my second and third property in 2004. In 2004 I bought four properties. In 2005, 2006 and 2007 I kept buying and buying going on and on.
Today average UK house prices are at £197,039 (Halifax data for December 2007) my first house is now worth about £145k again estimated by comparing to other sales in the area. That is very healthy growth in value and I think we are safe in thinking that this growth is in line with the belief that UK house prices double every seven years. I now have over 40 proprties in my portfolio which is worth nearly £4million on paper. Life is good, except for some problem tenants, but tenant problems are just part of the job of being a landlord.
Oh BTW I’m not too worried about the property prices dipping this year as I’m in it for the long term
About 3 weeks later the same agents called me back to ask me if I was still interested in the property as their buyer had pulled out. Of course I was still interested, she then proceeeded to ask me if I would like to pay any more for the house? Well of course not! I asked her if I needed to pay any more to secure the house and she said NO. I think she was a little inexperienced as an agent, but a very nice lady. And bingo that was my first purchase.
Boom, Boom, Boom!!
I lived in that house for a couple of years, doing some small home improvements to the garden, bedrooms etc. By mid 2003 the UK had experienced a boom in house prices, the average UK house price then was £132,589 (Halifax data). The house that I bought was now worth about £110k estimated by comparing average sales of similar properties in the area. I was more than delighted with this as I could sell the house and make a cool £30k in profit. The profit was on paper but I’d never made so much money without doing too much before. I was hooked I wanted more, more, more!
I wanted to repeat this sucess and went about looking for books that could teach me, I was hungry for more information and quickly put together a small library of property investment books. Check my recommended book list. After reading these books I put together a plan to buy more houses. I bought my second and third property in 2004. In 2004 I bought four properties. In 2005, 2006 and 2007 I kept buying and buying going on and on.
Today average UK house prices are at £197,039 (Halifax data for December 2007) my first house is now worth about £145k again estimated by comparing to other sales in the area. That is very healthy growth in value and I think we are safe in thinking that this growth is in line with the belief that UK house prices double every seven years. I now have over 40 proprties in my portfolio which is worth nearly £4million on paper. Life is good, except for some problem tenants, but tenant problems are just part of the job of being a landlord.
Oh BTW I’m not too worried about the property prices dipping this year as I’m in it for the long term
Is Blogging Income Passive Income?
Blogging and Passive Income
There is definitely a passive component to blogging income, but only in direct correlation to how timeless the content is. For example: which blogger is creating more passive income?
a) One who writes about the weather, what he had to eat, the new features of his website, what he read that day, what his new year’s resolutions are, what he plans on doing, and how he is feeling at the moment?… or
b) one who writes about a lasting principle that she has learned over many years, philosophies that took her years to develop, and what she learned from her experience in order to help other people save time and money?
The second blogger is writing timeless material while the first is writing material that is only relevant for the moment. The second blogger stands a much greater chance of creating passive income from blogging.
Measuring the Passive Component
No income source is completely passive. Passive income sources can be distributed on a continuum between completely passive and completely active, but it’s all relative. Most sources have a passive component and an active component.
It would be somewhat tricky to measure what percentage of a blogger’s income is passive and what percentage is active without asking that blogger to stop blogging for a year to see what percentage of his income persists.
Active blogging income is mainly composed of that traffic that is generated by eager fans who check in every day to get the latest post. Unfortunately, regular visitors aren’t the best source of income because they come for the content, not necessarily the advertisements. The click-through rates for regular visitors tend to be lower than for first-time viewers.
Passive blogging income has a lot to do with new visitors. Does your content have the ability to continually generate new viewers who are more likely to click on ads and affiliate links?
Complicating the formula is the fact that the amount of regular visitors contributes to the rate of new visitors. Regular visitors may spread the word about your site and attract new visitors.
Not a Traditional Blog
Genius Types has never really fit in with the traditional blogging mold. I’ve had many readers complain that I don’t post frequently enough, even to the point of questioning if I was still alive after a month-long break for the holidays. I’ve received harsh criticism for not participating in time-consuming blog memes and lists, which other blogs use as a source of harvesting cheap links (the currency of the web). Plus, I’m not very good with reciprocating links and comments.
The reality is that I’m more concerned with the long-term viability of Genius Types than I am with day-to-day traffic and social niceties. I see this site as a way to document the wisdom that I accumulate throughout life. Sometimes it comes to me frequently, and sometimes I go long periods of time without anything worth writing about.
I’ve tried forcing myself to post and it just didn’t feel right. Search through my archives and you’ll find a few trivial posts; but for the most part, I try not to write unless I have something to say.
There is definitely a passive component to blogging income, but only in direct correlation to how timeless the content is. For example: which blogger is creating more passive income?
a) One who writes about the weather, what he had to eat, the new features of his website, what he read that day, what his new year’s resolutions are, what he plans on doing, and how he is feeling at the moment?… or
b) one who writes about a lasting principle that she has learned over many years, philosophies that took her years to develop, and what she learned from her experience in order to help other people save time and money?
The second blogger is writing timeless material while the first is writing material that is only relevant for the moment. The second blogger stands a much greater chance of creating passive income from blogging.
Measuring the Passive Component
No income source is completely passive. Passive income sources can be distributed on a continuum between completely passive and completely active, but it’s all relative. Most sources have a passive component and an active component.
It would be somewhat tricky to measure what percentage of a blogger’s income is passive and what percentage is active without asking that blogger to stop blogging for a year to see what percentage of his income persists.
Active blogging income is mainly composed of that traffic that is generated by eager fans who check in every day to get the latest post. Unfortunately, regular visitors aren’t the best source of income because they come for the content, not necessarily the advertisements. The click-through rates for regular visitors tend to be lower than for first-time viewers.
Passive blogging income has a lot to do with new visitors. Does your content have the ability to continually generate new viewers who are more likely to click on ads and affiliate links?
Complicating the formula is the fact that the amount of regular visitors contributes to the rate of new visitors. Regular visitors may spread the word about your site and attract new visitors.
Not a Traditional Blog
Genius Types has never really fit in with the traditional blogging mold. I’ve had many readers complain that I don’t post frequently enough, even to the point of questioning if I was still alive after a month-long break for the holidays. I’ve received harsh criticism for not participating in time-consuming blog memes and lists, which other blogs use as a source of harvesting cheap links (the currency of the web). Plus, I’m not very good with reciprocating links and comments.
The reality is that I’m more concerned with the long-term viability of Genius Types than I am with day-to-day traffic and social niceties. I see this site as a way to document the wisdom that I accumulate throughout life. Sometimes it comes to me frequently, and sometimes I go long periods of time without anything worth writing about.
I’ve tried forcing myself to post and it just didn’t feel right. Search through my archives and you’ll find a few trivial posts; but for the most part, I try not to write unless I have something to say.
Passive Income
Passive income, on the other hand, is income that does not require your direct involvement.
Some kinds of passive income you may be familiar with include owning rental property, royalties on an invention or creative work, and network marketing. If you want to earn more, work less, and have a decent retirement, you're going to have to start creating income streams that do not require your direct involvement. Whether you're just starting your business, or you've been running it a while, the sooner you start thinking about how you are going to shift your business model to create more passive income, the sooner you can achieve personal and financial freedom.
Let's look at two basic types of passive income, and a third type of income that, while technically not passive, is a key strategy for earning more and working less.
Residual Income
Residual income is revenue that occurs over time from work done one time. Some examples include:
· An insurance agent who gets commission every year when a customer renews his policy
· A network marketing or direct sales rep's income from her direct customers when they reorder product every month
· An aerobics instructor who produces a video and sells it at the gyms where she teaches
· A marketing consultant who creates a workbook and sells it in e-book format on the Internet
· A photographer who makes his photos available through a stock photography clearinghouse and gets paid a royalty whenever someone buys one of his images
· A restaurant or retail owner who has grown to the point of hiring a trustworthy manager
As you can see, there are many different ways to generate residual income across a wide variety of businesses. It may be recurring income from the same customers, or the sales of a product to new customers. It may require no personal involvement whatsoever, such as an e-book sold on a web site, or it may require some personal interaction, such as the insurance agent calling the customer to remind them about their renewal and ask them if they want to change any of their coverage. Often, it's something that you can delegate to an assistant.
Note that this is different from merely recurring income. Recurring income may still require your involvement to earn the income, e.g., a coach or consultant on a monthly retainer, or a caterer who delivers lunch every Monday to the local school board. While this "active recurring income" offers welcome stability, it also tends to tie you down, and you still have limits on your earning capacity based on your own personal production capacity.
Leveraged Income
Leveraged income leverages the work of other people to create income for you. Some examples of leveraged income include:
· An e-book author selling her e-book through affiliates who promote the product
· A network marketer who builds a downline and receives commissions on the sales made by people in his downline
· A general contractor who makes a profit margin on the work done by sub-contractors
· Franchising your business model to other entrepreneurs (the ultimate leveraged income)
Again, there are many different models in many different businesses. The key is that you are making money off of other people's labor, rather than primarily your own. Note that leveraged income may or may not also be residual income. When you combine them, that's even better.
Active Leveraged Income
This is a term I use to describe income that requires your direct participation, but that you can make more money by having more people involved. This generally involves a one-time event, such as:
· A seminar or class
· A conference or convention
· Concerts and dance recitals
· Raves and other parties
Although these require your direct participation, your earning potential is much higher than if someone were just paying you a direct hourly rate. Fill a room with 1,000 people paying $50 each and you can cover your facility cost, promotional cost, and staffing fees and still have a nice chunk of change left over.
Applying It
Now is the time to think about how to apply this in your business. Can you create a product that people will buy over and over again? Can you engage others to sell your product? How could you make money off the work of others?
The sooner you answer these questions, the sooner you'll have financial and personal freedom.
Some kinds of passive income you may be familiar with include owning rental property, royalties on an invention or creative work, and network marketing. If you want to earn more, work less, and have a decent retirement, you're going to have to start creating income streams that do not require your direct involvement. Whether you're just starting your business, or you've been running it a while, the sooner you start thinking about how you are going to shift your business model to create more passive income, the sooner you can achieve personal and financial freedom.
Let's look at two basic types of passive income, and a third type of income that, while technically not passive, is a key strategy for earning more and working less.
Residual Income
Residual income is revenue that occurs over time from work done one time. Some examples include:
· An insurance agent who gets commission every year when a customer renews his policy
· A network marketing or direct sales rep's income from her direct customers when they reorder product every month
· An aerobics instructor who produces a video and sells it at the gyms where she teaches
· A marketing consultant who creates a workbook and sells it in e-book format on the Internet
· A photographer who makes his photos available through a stock photography clearinghouse and gets paid a royalty whenever someone buys one of his images
· A restaurant or retail owner who has grown to the point of hiring a trustworthy manager
As you can see, there are many different ways to generate residual income across a wide variety of businesses. It may be recurring income from the same customers, or the sales of a product to new customers. It may require no personal involvement whatsoever, such as an e-book sold on a web site, or it may require some personal interaction, such as the insurance agent calling the customer to remind them about their renewal and ask them if they want to change any of their coverage. Often, it's something that you can delegate to an assistant.
Note that this is different from merely recurring income. Recurring income may still require your involvement to earn the income, e.g., a coach or consultant on a monthly retainer, or a caterer who delivers lunch every Monday to the local school board. While this "active recurring income" offers welcome stability, it also tends to tie you down, and you still have limits on your earning capacity based on your own personal production capacity.
Leveraged Income
Leveraged income leverages the work of other people to create income for you. Some examples of leveraged income include:
· An e-book author selling her e-book through affiliates who promote the product
· A network marketer who builds a downline and receives commissions on the sales made by people in his downline
· A general contractor who makes a profit margin on the work done by sub-contractors
· Franchising your business model to other entrepreneurs (the ultimate leveraged income)
Again, there are many different models in many different businesses. The key is that you are making money off of other people's labor, rather than primarily your own. Note that leveraged income may or may not also be residual income. When you combine them, that's even better.
Active Leveraged Income
This is a term I use to describe income that requires your direct participation, but that you can make more money by having more people involved. This generally involves a one-time event, such as:
· A seminar or class
· A conference or convention
· Concerts and dance recitals
· Raves and other parties
Although these require your direct participation, your earning potential is much higher than if someone were just paying you a direct hourly rate. Fill a room with 1,000 people paying $50 each and you can cover your facility cost, promotional cost, and staffing fees and still have a nice chunk of change left over.
Applying It
Now is the time to think about how to apply this in your business. Can you create a product that people will buy over and over again? Can you engage others to sell your product? How could you make money off the work of others?
The sooner you answer these questions, the sooner you'll have financial and personal freedom.
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