Passive income is the dream, right? Arrange your life and finances so that money consistently flows into your bank account, regardless of your employment status or energy spent hustling for gigs. I don’t mind doing hourly work as long as the work is tolerable, the clients are nice, and the rate is fair, but passive income certainly reduces my stress levels.

I currently have nine sources of passive and semi-passive income:

  • book royalties
  • music sales royalties
  • music publishing royalties
  • blog affiliate income
  • Patreon
  • service contracts
  • equity dividends
  • interest
  • capital gains

Some of these sources contribute negligibly, less than $50 in a month, but in total my passive income averages about $3000 a month. Not enough to cover my current lifestyle (especially since 100% of my dividend and capital gains income are reinvested) but enough to provide a significant financial buffer. Even when I have a slow month in terms of consulting hours, the passive income almost guarantees that my net worth keeps growing.

I tend to think of passive income falling into two general categories:

  1. Passive income that results from a “labor of love”. About half my passive income fits into “do what you love and the money will follow”. For me, that includes book and music royalties, blog affiliate income, and Patreon.
  2. Passive income that can be reliably generated from a consistent investment and/or career strategy. For me that includes service contracts and investment income from interest, dividends, and capital gains.

Despite that distinction, most of my principles for building passive income apply to both categories. Here they are, in no particular order.

  1. Never go all in. Never bet your house, your reputation, your health, or anything else you can’t afford to lose. Building passive income is a long game, and the #1 rule is survival. It’s hard to win if you lose everything and have to start over from scratch.
  2. Reduce risk and improve odds. There’s no valor in unnecessary risk. Risk is a bitter pill to swallow when there’s a clear reward, either guaranteed or probabilistic. Don’t take on risk unless the odds are in your favor.
  3. Buy low/don’t buy high. This applies to property, dividend stocks, or any other asset. Be patient. Buy the dips. And buy the crashes big. Always keep some liquidity to spare so you can keep buying if prices keep dropping (as long as the fundamentals are sound and what you’re buying actually has value).
  4. Only do what interests you (don’t force yourself to do things you’re not interested in). Follow your fascination. Don’t invest time in areas that bore you. To me this is what “follow your passion” really means. There has to be a spark for you to care. If you don’t care, you won’t pay attention and you won’t make progress. And if you’re not interested in anything, you’re probably depressed, so address that first (with fish oil, sunshine, better diet, exercise, therapy, meds, whatever it takes).
  5. Expect change, disruption, and cycles. For ten years my main source of passive income was a wildly popular weekly electronic music event in San Francisco. As parties go, this one lasted an extremely long time. But all good things come to an end. I saw that end coming and drummed up some new client work so I didn’t get caught flat-footed. The one constant of passive income is change. Products and services sell well and then they don’t. Companies pay big dividends and then they don’t. Interest rates rise and fall. Hedge against change with multiple passive and active income sources.
  6. Be a good person and give more than you expect to receive. If people trust and like you, they’ll want to do business with you. If they see you going out of your way to help people, they’ll want to do the same for you. It’s really simple. And it feels good too.
  7. Avoid what doesn’t feel right. For several years I experimented with running ads on this blog. But it always felt a little sleazy, so I stopped. Your income sources need to align with your principles and proclivities.
  8. Choose long-term over short-term gain. Avoid the lure of the quick buck. Don’t sell because you’re 10 or 20% up. Maintain control of your intellectual property so that it pays you for decades, not days.

I know these principles are abstract. But ultimately I think they’re more useful than specific advice that might not apply to your situation.

Let me know what you think. Do you have passive income sources, and if so how did you build those up? What were the challenges? What are your own principles for building passive income?