Hello everyone, I’m Cayden, a programmer. Today let’s talk about how to build passive income.
I often hear people online saying they want to achieve financial freedom, thinking they need to have millions or even billions of assets. I understand this thinking, but I believe this is a misunderstanding of financial freedom. Even if you really have that much money, life is long - can you really guarantee financial freedom until old age?
Human desires are infinite. When you really have a lot of money, your needs will naturally rise with the tide. With money, you’ll consider buying villas worth tens of millions or even billions, buying luxury cars, even several to drive alternately. Wealth will gradually decrease with your extravagance, and you might even start to become poor again.
So the financial freedom I understand is not a stock concept, but an incremental concept.
Not long after I graduated, I read a book called “Rich Dad Poor Dad,” which mentioned the concept of passive income: don’t earn income by selling your time, but achieve financial freedom by building passive income.
What is Passive Income?#
Passive income refers to income sources that don’t require you to continuously invest a lot of time and energy but can continuously generate returns. Unlike active income (salary, service fees), passive income, once established, can continue to make money for you even when you’re not working - what everyone calls “sleep income.”
So what forms can building passive income take?
Categories of Passive Income#
I’ve also seen many people online sharing the composition of passive income, but I feel they either talk too specifically or don’t cover it comprehensively. I’ll summarize the main forms of passive income based on my own understanding.
1. Investment Class#
Investment class is essentially “money making money” - through financial investment, purchasing investment targets with funds and being friends with time. If there’s a relatively stable annual return rate, then this is passive income. Of course, when mentioning investment, some people think of short-term stock trading or cryptocurrencies, but I think this is actually active income that requires frequent operation, so it doesn’t count in this category. Here are the investment-related forms I’ve summarized:
- Dividend Investment: Buy dividend stocks and regularly receive dividend income
- Bonds: Buy government bonds, corporate bonds and other fixed-income products
- Index Funds: Regular investment in broad-based index funds, enjoying long-term market growth
- Cryptocurrency: DeFi mining, staking, etc. (higher risk)
2. System Class#
System class, as the name suggests, is building a system that can run automatically. I divide this system into two major categories: company systems and machine systems.
Company Systems#
Mainly a set of automated execution process systems with people as production factors.
For example, if you’re a boss who started a restaurant, after completing employee recruitment, you establish a complete set of work processes and systems, letting people in various positions do their jobs and provide catering services to customers. If this process can achieve positive cash flow, then the boss basically just sits and collects money.
Machine Systems#
Mainly machines that can run automatically or software programs running on machines, of course still requiring a small amount of manual work to maintain operation.
Generally divided into hardware systems and software systems:
Hardware systems include vending machines, shared charging stations, shared bicycles, etc. These are machines that allow customers to complete orders independently, requiring only maintenance personnel for daily maintenance.
Software systems include SaaS services, mobile applications, API services, plugins/extensions, automated e-commerce, etc. These software systems need continuous maintenance and updates, but don’t require a lot of manual input - just a small amount of manual maintenance. Through continuous maintenance and updates, stable income can be obtained.
3. IP Class#
IP class is essentially intellectual property monetization, including courses, brands, novels, comics, games, music, videos, images, etc. If you can own your own intellectual property and successfully monetize it, then you can obtain stable passive income through licensing.
For example, if you’re a novelist who wrote a novel, you can license the novel to other platforms (like Yuewen Group) to obtain stable income. Or if you’re a musician who created a song, you can license the song to other platforms (like NetEase Cloud Music) to also obtain stable income.
Summary#
graph TD
A["🎯 Passive Income"] --> B["💰 Investment Class"]
A --> C["⚙️ System Class"]
A --> D["📝 IP Class"]
B --> B1["📈 Dividend Investment"]
B --> B2["🏛️ Bonds"]
B --> B3["📊 Index Funds"]
B --> B4["₿ Cryptocurrency"]
C --> C1["🏢 Company Systems"]
C --> C2["🤖 Machine Systems"]
C1 --> C1a["🍽️ Restaurant Chains"]
C1 --> C1b["🎓 Education & Training"]
C1 --> C1c["🔧 Service Companies"]
C2 --> C2a["🔧 Hardware Systems"]
C2 --> C2b["💻 Software Systems"]
C2a --> C2a1["🛒 Vending Machines"]
C2a --> C2a2["🚲 Shared Devices"]
C2b --> C2b1["☁️ SaaS Services"]
C2b --> C2b2["📱 Mobile Apps"]
C2b --> C2b3["🔌 API Services"]
D --> D1["✍️ Content Creation"]
D --> D2["🎮 Digital Products"]
D --> D3["📄 Licensing"]
D1 --> D1a["📚 Courses"]
D1 --> D1b["📖 Novels"]
D1 --> D1c["🎵 Music"]
D2 --> D2a["🎮 Games"]
D2 --> D2b["💿 Software"]
D3 --> D3a["🌐 Platform Licensing"]
D3 --> D3b["📋 Copyright Licensing"]
The above is my understanding of passive income types, mainly divided into investment class, system class, and IP class. Under each major category, there are several subcategories. For these types, you might find that achieving these three categories all have prerequisites. Everything is difficult at the beginning - whether it’s investment capital, time and manpower for system construction, or the creation of novels and songs, all require early accumulation and effort.
So as a programmer, how should you achieve the above passive income?
How Programmers Can Achieve Passive Income#
Investment class might be the easiest for programmers to achieve, but investment class requires you to have sufficient capital and sufficient risk tolerance. Because investment always has gains and losses, it’s not necessarily a stable income source. If it’s stable, it won’t bring much return either.
System class includes company systems or pure machine systems - both types are relatively difficult. Company systems require you to have management abilities, strong communication skills and resource coordination abilities; pure machine systems require hardware capital investment, and more importantly, large initial investment with long payback periods.
So, combining the technical characteristics of programmers, I think the most suitable should be the software direction of machine systems in the system class and IP class. More specifically, it’s building a software system with intellectual property and branding, then obtaining passive income through this software system.
To put it more simply, it’s building your own independent brand and independent product, then obtaining passive income through this brand and product.
Of course, independent development is not a simple thing either. It requires you to have good product abilities, marketing abilities, technical abilities, operational abilities, customer service abilities, etc. You need to have comprehensive abilities and sufficient patience and persistence. This is a long-term thing that won’t make you quick money. There are many ways to make quick money, but they’re often hit-and-run - how can that be called passive income?
Summary#
Passive income is not achieved overnight. Programmers need to:
- Change mindset: Shift from selling time to creating a system that can run automatically and generate income automatically
- Comprehensive abilities: Combine your own skills with market demand, develop comprehensive abilities including product abilities, marketing abilities, technical abilities, operational abilities, customer service abilities, etc.
- Continuous execution: Start small, gradually expand scale, continuously execute, optimize, and improve
- Long-term persistence: Passive income requires time accumulation, sufficient patience and persistence - this is a long-term thing
Remember, the best source of passive income is a product or service that you can continuously provide value. As programmers, we have unique technical advantages. As long as we find the right direction and persist, we can completely achieve financial freedom.
Financial freedom is not about having how much money, but about having the ability to continuously create value. Let’s work together to build our own passive income system!