In thinking about my goal of creating a business, I’ve had to think a lot about what that really means, and my reason for even wanting to create a business.
I’ve spent a lot of time thinking about different ways to make money over the past few years — how I could increase my income, cut costs, and all that money-related stuff — but through it all I always knew my priority was creating a business.
After countless conversations and lots of banging my head against a wall, I’ve realized my interest in creating a business stems from two values:
- Financial independence
- Personal autonomy
Financial independence means not having to worry about money. It means having what you need to live your life the way you want to.
Personal autonomy means being free to control your life and make your own choices. When you’re a slave to debt, or you’re dependent on a rigid job, then chances are you don’t have complete control over your life.
Granted, there are a bunch of other things that creating a business represents or provides:
- a sense of meaning and significance
- the ability to contribute and provide value to others
- personal growth and expanding ones abilities
I highlighted financial independence and personal autonomy because, as someone who is a slave to a day job, they are particularly desirable right now.
Making money in a way that you control is the goal.
When you are in complete control of your income then it’s up to you whether or not to invest more time and energy in increasing that income, or just enjoying it, or even deciding to reduce your involvement so you can have more time for other things you value.
In deciding to create your own business, it’s important to consider the different types of income you can earn.
Meaning: ways to make money.
The type of income you desire will influence the type of business you create, so let’s take a look at the options.
Ways to Make Money: What to Expect From Each Approach
- Earned income
- Portfolio income
- Passive income
Money you make from working.
This is the most common type of income and is the easiest to start with.
We’re all familiar with the traditional trade of time for money. When you have a job that pays you a salary, you are trading your hours (of your life) for money.
This is a great type of income to start with since it’s so easy to get started, but the obvious downside is that when you stop working, you stop making money.
Examples of earned income:
- Working a job
- Running your own small business
- Anything that is a direct trade of money per hour/project
Money you make from selling an investment for a higher price than what you paid for it.
Instead of trading your time for money, here you are trading your money for money (you have to have money to invest).
You might purchase stock in Amazon and then sell it after the share price goes up. To do well with this type of income, you typically need some knowledge in the specific area you’re investing in. It’s also worth noting that your only control over the situation is your knowledge of when to buy and when to sell. You can’t force the investment value to rise (or if you figure out how to do this, you may be breaking a law as part of some regulation somewhere!)
Examples of portfolio income:
- Buying/selling stocks, bonds, mutual funds, ETFs, etc.
- Buying/selling real estate
- Buying/selling antiques, collectables, or anything else that has value
Money you make from assets you have created or purchased.
Here you are trading time or money upfront for recurring money later.
You might purchase a house or condo and then rent it out, giving you a source of ongoing income. Out of all the ways to make money, this one is considered the “holy grail” because you typically don’t have to spend much time or money on the assets after you’ve created them and got them up and running.
If you create an online course, you might have to do a lot of work up front to make sure it’s a good course that offers value to customers, but once it’s done, it’s done.
Your involvement in that online course will be minimal going forward yet you’ll continue to receive income every time someone purchases it.
Examples of passive income:
- Rental income from real estate
- Creating and selling e-books, online courses, online memberships
- Income from an automated business (e.g., you hired someone to run it for you)
- Affiliate marketing (where you setup a site to sell other people’s products)
Growing up, most of us first become aware of earned income.
You might have been exposed to portfolio income when you were gifted some stocks by a family member, or if your parents setup a brokerage account for you, but maybe not.
Personally, I was aware of earned and portfolio income for most of my childhood, but it wasn’t until getting into the startup world that I really became aware of passive income.
Why passive income is exciting to me
Set it and forget it? Uh, yeah. That sounds good.
I can go to sleep on Monday and wake up on Tuesday to find new sales receipts in my inbox? Yeah, making money while I’m asleep sounds fantastic.
I can continue to create passive income products to steadily increase my recurring income over time? Very interesting…
One strategy that’s particularly appealing is creating online passive income products (e-books, courses, membership sites) and then focusing on marketing to grow sales/income exponentially.
Take an e-book for example.
Maybe you create an e-book on how to train pugs to do backflips (not sure if this is possible) and charge $13 for every sale.
You spend hours and hours researching pug acrobatics, you invest time working with your own pug and getting your canine friend to get comfortable with life upside down, and then you spend more hours assembling the content and information into a beautiful, user-friendly, readable e-book.
That was a lot of work.
But now every time you sell a copy, you make $13.
You don’t have to do any more work now.
You installed a tool on your website to make the process easy, so each time a customer buys, you simply get an email receipt and a direct deposit into your bank account.
Now that’s not too bad huh?
Are you currently making, or planning to make, passive income?