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A new year is a great time to turn over a new leaf and gain more control over your financial future. Those looking to supplement income and gain more control over their financial future may want to consider starting a passive income side hustle.
A side hustle is any activity or business venture that allows individuals to pursue their passions and earn extra money outside of their primary job or career. A side hustle that generates passive income requires minimal effort or doesn’t require active participation at all. The rise of digital automation technology has made starting a passive income side hustle easier and more accessible than ever before.
Passive income side hustles provide a variety of financial, personal and professional benefits. They can help people supplement income, pay off debts, put kids through college, save for vacations, establish a safety net and build generational wealth. Additionally, side hustles allow individuals to explore their passions while gaining valuable entrepreneurial experience and developing skills that can be beneficial to other areas of life and work. Here are five steps to help you start a passive income side hustle.
Related: 3 Traits That Turn a Side Hustle Into Wealth
1. Let your skills, talents and passions guide you
Determining which passive income side hustle to pursue is the obvious first step, but it’s not necessarily as easy as you might imagine. Before pouring time, energy and money into a side hustle, think hard about what you like to do, what you’re good at and what people value. To maximize your chances of success, you must check all three boxes off before embarking on your journey.
If you’re a great writer but hate writing, becoming a freelance writer may lead to procrastination, frustration and burnout. Alternatively, tweaking it into a more passive venture, such as maintaining a blog with ads and sponsorships, may be more sustainable. Similarly, suppose you are great at something and like doing it, but people do not value it. In that case, it may be a great hobby, but it won’t provide you with the supplemental income you’re looking for unless you can adapt the idea into something that people are willing to pay for. Conversely, you may love photography but lack the proper skills to produce quality and marketable results. However, if you’re ready to put effort into learning to become really good at taking photos, you can sell them to stock photography websites that can provide a source of passive income.
Combining solid skills or natural talent with activities that bring you joy and fulfillment and add value to others is ideal for creating a successful side hustle. Possible ideas for side hustles that generate passive income include renting property, affiliate marketing, stock photography, YouTube automation, investing in dividend stocks or exchange-traded funds (EFTs), and creating an online course or ebook. The opportunities are endless.
2. Conduct market research
Once you’ve identified a suitable passive income side hustle, it’s important to research its market segment to understand its unique characteristics and gauge the demand for your products or services. Consider what similar businesses are offering and charging in that space and how you might be able to differentiate yourself. This will help confirm there is a viable market for your side hustle idea and ensure you realize what it will take to succeed.
Conducting due diligence research will also ensure you know any laws, regulations, and taxes that may apply to your new venture. For instance, if you’re earning a more significant amount of income, be sure to read up on the IRS tax filing requirements or consult a tax professional for help and advice.
Likewise, study up on local, state and federal laws that pertain to your industry to ensure your side hustle complies with any laws or regulations. Any side hustle may require forming a legally recognized business entity, and there are seven business structures to choose from. It’s essential to understand how they function, especially pertaining to tax implications and personal liability, in order to make an informed decision about which one is right for your side hustle. You may even want to consult an attorney and consider purchasing insurance for added protection.
3. Consider time commitment and earning goals
Balancing a full-time job and family obligations with any side hustle can be challenging, even one that is considered passive. Therefore, practice effective time management by creating schedules and allocating blocks of time to work on your side hustle. Keeping track of your schedule for a couple of months can help you identify patterns and determine when you can devote time to your side hustle and how much time you will be able to commit to it. Setting realistic goals and prioritizing important tasks is essential to make the most efficient use of your time.
It’s also essential to think about your earning goals. If you don’t have a clear idea about how much money you’d like to make, consider why you’re starting a side hustle in the first place. If you’re looking for extra income to pay off student loans, for example, make a budget to determine how much extra money you’ll need to achieve that goal. Once you have a general idea of your financial goals, research the average amount of money you might make from your side hustle. Remember to compare earning potential to the amount of time you’re willing to commit to your new venture. That way, you can set realistic earning goals to start. Once you get into the swing of things, you can always adjust your earning goals.
Related: The 8 Best Online Side Hustles of 2023
4. Build a thorough (business) plan
A side hustle is a business — and just like any other business, it requires a viable plan to be successful. Depending on the type of passive side hustle you choose, building a solid foundation for your venture will require developing a thorough plan, at the very least, or a formal business plan if you’re setting up a legal entity. To varying degrees, both plans should identify goals, set a pricing strategy, define target audiences, outline marketing strategies and capture financial projections. Putting your plan in writing will help you envision it holistically, develop it more fully, and discover any areas that may be weak or nonexistent.
First, write an executive summary that articulates a clear vision and mission for the business and includes short and long-term goals, purpose and value propositions for the intended market(s). Next, provide detailed descriptions of the products or services to be offered, detailing specific features and benefits. It is essential to highlight any unique qualities that differentiate your business from its competitors and explain how your offering solves specific problems and fulfills specific needs. Finally, provide pricing, projected revenue, expenses and cash flows, as well as a breakdown of any required funding or investments.
Once those basics of the business plan are well defined, you can begin building marketing personas. These are descriptions of the types of customers who may benefit from and be interested in your offerings and how you can find and appeal to these customers to build your business. Word of mouth may be effective at first, but you may eventually need to build a marketing plan to attract more customers. Leverage social media to create free business accounts and begin building a following. Ask your friends and family to support your business and help you spread the word.
5. Start small, but plan big
It’s admirable to have big dreams and shoot for the stars. Remember that accomplishing such goals can only be done with scalable operations. Constantly question how you are spending your time when working on your side hustle and look for ways to automate manual tasks. The first goal in starting a business is going from zero to one — getting the first customer that values and pays for your work. However, scaling from one to many more requires a non-linear relationship between your time and sales made.
Whether your side hustle is real estate, YouTube automation, stock photography, or blogging, the right software and business operation can help you ensure that you are prepared to scale your side hustle without scaling your time commitment along with it. With thoughtful planning and effective time management, you can increase your chances of success as a side hustle entrepreneur.
