The reason I think passive income is good is because theoretically, if you could make an extra £500 a month, £1,000 a month from a thing that you didn't have to spend your own time doing, that means you can take that box over the economic engine and then you can spend your time doing stuff you actually want to do. Maybe that'll involve quitting your actual job and doing something different, maybe it'll involve going part-time, maybe it'll involve spending more time with your family and kids and stuff. Having that financial freedom is life-changing, and passive income is one path on that route to financial freedom, which is ultimately on that route to living a happy, healthy, full-life. Ali, I'm Dom.
Welcome to the show. Thanks for having me on. Look at this lovely studio that we're in. I know.
It's still a work in progress. Beautiful. Yeah, we've got a little forest, like plants in the background. Yeah, we are in some foliage.
I haven't figured out that name for them yet, but I feel like I've heard that name. Yeah, that's very you. So I've just recorded on your show. I'm going to return the favour and talk about stuff online.
What are you talking about? I want to talk about passive income, which is another one of your specialist subjects, I think. Yeah, I've done a lot of reading around it and dabbled with it. So let's see what the conversation is.
One of the interesting things is that for most people, income is... We're not really taught about passive income and multiple income streams. The absolute peak that most people will get is earn more than you spend and try and put money into a pension or some sort of ITA of some kind. There's not really a very good understanding of how you spread your risk, about how you can have multiple income streams.
Maybe people who are not self-employed don't think that this is the sort of thing they should be doing. For people who are self-employed, they might not have the time or the understanding to actually be able to work out what they should do. So if you're talking to someone about passive income, why should someone even be bothered? Why should someone even think about it as an option?
Yeah, so the reason I think of it as being a good thing is I think ultimately we're all trying to live a life that's happy and meaningful and fulfilled and stuff. Like that's ultimately what we're all aiming at. Even with all the stuff we talk about on the show, that's our destination. Now a big part of why we might not get to that destination, there are various hurdles that can get in the way.
For example, if you have a major health problem, that kind of gets in the way of you living your best life and so you want to try and solve the health problem. And if you, for example, people who have chronic pain say that it just adds a real damage to your life forever, there's not much you can do about that. And I think when it comes to money, we all need money to survive. And the way that most of us make that money that we need to survive is by doing a thing, a job that we go to for 40 hours plus a week that we spend 80,000 hours of our lives doing.
If you could magically make everyone not need that money to survive, then I think we would be more free to live our best life. And the way I think of it is, it's almost like in board games. Have you ever played those really long, three-hour-long type board games? No, I know that you absolutely love these.
And so there's a game called Agricolor, which is like, it's like Farmville, but like board game format that used to play with my friends at uni. And a lot of these kind of strategy board games, you need to create for yourself an economic engine of some sort, whether that is like, I don't know, breeding sheep or getting, collecting hay or collecting wood or being the person who lays brick within the context of the board game. And once you've built your economic engine, at that point, you can start winning, like moving towards the victory points and winning the game. I think in real life, we all need an economic engine of some sort.
And it would be really nice in a dream world if the thing that we did to make money is also the thing that brings us passion and joy and genuinely contributes to us living our best life. But for most people, including me, that thing is not the same as the thing that makes me money. And so long answer to the question, like the reason I think passive income is good is because theoretically, if you could make an extra £500 a month, £1,000 a month, $1,500 a month from a thing that you didn't have to spend your own time doing, that means you can take that box of economic engine and then you can spend your time doing stuff you actually want to do. Maybe that would involve quitting your actual job and doing something different.
Maybe it would involve going part-time. Maybe it would involve spending more time with your family and kids and stuff. But having that financial freedom is life-changing. And passive income is one path on that route to financial freedom, which is ultimately on that route to living a happy, healthy, healthy life.
How do you think about wealth? Like let's say you're talking to someone you want to explain to them about wealth creation and what it is. How do you think about that? Do you think about it in terms of if you have a central job and then you try and peel cash off the top?
What's the sort of basis? I guess it's, for me, it's like how much money do I need to live and then how much money do I need to have a good life? I.e. good life to find us doing the things I want to do.
For me personally, I don't think my life is particularly extravagant and therefore figure out what that amount of money is. Usually the amount of money I need to live is different to the amount of money I would like to have in order to live a good life. And then I just think we need to figure out a way of hitting those numbers. And for most people, that's their job.
But that most of the income streams is another way of hitting those numbers. And for most people, what I usually advise is don't quit your job. Like do your job. We found that in the pandemic, people lost their jobs and where, you know, this black swan event happens that people can't imagine happening since like 1919 or whatever.
People lose their jobs and you realize, oh my gosh, reliance on a single source of income is not a very antifactal way of living life, as they say. And so multiple streams of passive income, whether it's through investments or through businesses or whatever, is a way of de-risking yourself. So that's what I think about wealth. Like less so in the sort of construct of wealth, more in the case of how much money do I need to live, how much money do I need to live with life.
Does anyone need to start anything before they start thinking about passive income? Is there a step 0.5 before we start with step 1? Probably not. I mean, I think the issue with passive income is actually, yeah, most people need to start with active income before they can switch to passive income.
So you need to have some money coming in through something that you're doing. It is very hard to just conjure up a stream of passive income passing to finders. You're not really working for it. I guess we can go into it in definitions.
But I think active income, single stream, start with single stream of income, and then worry about like diversifying that in multiple streams. Cool. Stocks and shares. Where do you start?
I don't know about stocks and shares. I don't know what to put money in. I don't know what trading is. What do you start?
Okay. That leads us into a long conversation. So practical advice. Don't worry about it.
Put money into, if you're in the UK, into stocks and shares ISA, which is a savings account, or in America, your Roth IRA or 401k. And if you can invest money, invest it into a stock market index fund. Basically what that means is that you are, instead of buying one company, like Apple or Microsoft or Tesla or Google, you're buying a stake in the top 500 companies in America. Which would just happen like if you put 100 quid in something called the S&P 500, three pounds would go to Apple and you'd own three pounds of Apple.
Two pounds, you'd own two pounds of Alphabet A and B. So Google, you'd own two pounds of Microsoft, two pounds of Amazon and so on. And that means you can invest in the stock market without worrying about trying to cherry pick individual stocks, which doesn't work for anyone unless you're like a very, very, very professional hedge fund manager. And even then, for those guys, picking stocks doesn't really work.
So that would be my advice to people. But I think it does help to have a first principle understanding of what the stock market is and how that kind of stuff works. I saw a video of Warren Buffett and Charlie Munger giving an end of year address a couple of years ago. And they were talking about, I think Warren had made a bet with a bunch of hedge fund managers to see if they could beat the S&P 500.
Have you seen this video? So sick. So, well, can you explain what happened and why that seems to be the case? Yeah, so the thing with funds.
Basically, if you're a rich person, you want your money to grow. If you don't want money sitting on a bank account onto a mattress, it deflates over time because of inflation, because of government principal money, which is about crypto and stuff, which we won't go down because I'm not familiar with that space, trying to understand it myself. But basically, money sitting on its own reduces its value over time. And therefore, if you have money, you want it to ideally increase its value over time.
And one way you can do that, you can do it in real estate, or you can do it by buying and investing in stocks and shares. So you own a percentage of a company. If you do what I recommend, and what Warren Buffett and Charlie Munger recommend, you just invest in an index fund which tracks the whole stock market, and you don't have to worry about it. But some people invest in actively managed funds.
So that's basically, I would give you some money. I'd say, Chris, here is a million pounds. I want you to grow my million pounds. You would say, oh shit, I need to give you a million pounds.
I need to grow it. But I need to do something other than just invest in the fund, in the index fund, right? Because I need to try and beat the market. That's what beating the market means.
And so you think, you know what? I think Tesla's going to do well. I think Netflix is going to do well. I think Petz.com is going to do well.
And I think, I don't know, Febreze is going to do well. I'm going to put a quarter million of money into those things. And I'm really going to hope that it outperforms what it would have done had I put it into the top 500 companies in the US without thinking about it. And apparently, according to Warren Buffett, I haven't read the research on this first time myself, but what Warren Buffett says and what a lot of advice on this industry is that the funds that do well one year, like let's say Chris's fund returns 20%.
So my million goes to one for $2 million, whereas the S&P 500, the index market only returns 10%. So if I was average Joe investing in the next fund, I'd make 10%. But if I gave him money to you, Chris, I'd make 20%. But there's no guarantee that the next year, your fund is also making 20%.
And there's also no guarantee that in year three, your fund is still doing well. And it turns out that there are very few funds, if any, that can actually just beat the market overall, which is what this bet was that Warren Buffett did build these hedge fund managers and he ended up winning it. And actually doing something that anybody could do, pressing go all in on the S&P 500, which is in itself kind of a hedge type of investment because it's across so many different companies. And you're talking about professional hedge fund managers that were spending time and charging commissions and doing research and looking at, is this overpriced?
What's the R number on the Fibonacci sequence, overtrend, all this stuff? Exactly. Just put it in the S&P 500 and the S&P beat all of them. That's the one, yeah.
I think there are some funds in the world, especially the ones that invest in early-stage startups and things where you probably do beat the market, but normal people don't have access to those. You have to be like ridiculously rich to be able to invest in those sorts of funds that do that kind of thing. Therefore, most people should just invest in the S&P 500 or a broad stock market index fund. Back in the day, a stockbroker was some dude on Wall Street that he would ring up and say, hey, Tom, I want to put $20 on Apple.
And he'd be like, all right, I'm placing that order. These days, stockbrokers are online. So you have these online stock trading platforms, and it varies between different countries. In the UK and the US and a bunch of countries in Europe, Vanguard is the most trusted.
It was the original kind of index fund place. So you just open an account with Vanguard, and you put some money into it. Like, let's say you start with $10, $100, $1,000, whatever, and then you can allocate that money to one of these funds. And the one that I'm fully invested in is the S&P 500, which is just the $500 biggest companies in the US.
I don't think too hard about it beyond that. So that's why I suggest it's Google Best Online Stockbroker. Hardware's Lansdown is quite popular in the UK. That's quite easy to set up.
And you can tie that in. The allowance in the UK is £20,000 per year that you can put in tax-free, and the returns are also not taxed on that. So over time, that 20 will be 21, 22, 23. So yes, you can also set up a standing order slash direct debit, which I think is a nice way to portion off a little bit of money every single month.
I know that X hundred pounds goes into that, and that also permits you to do what's called dollar-cost averaging, which is to piece into the market over time. So the market's going to do these little wiggles, wiggly wiggles up and down, hopefully trending upwards, which means you're continuing to earn money. But by piecing in consistently over multiple months, you don't end up ever catching too many big or too many low points within the market, and you get out of it on the other side. Exactly.
So I have a monthly stand order for £500 into the S&P 500, and £2,000 into Bitcoin and Ethereum. Have you seen Coinbase has a smart investing thing? Oh, I haven't. What is that?
So Coinbase is a trading account that you can use to also a wallet for crypto, and they have a dollar-cost averaging service that uses the movement of the price to allocate how much of your funds should go in. So let's say that you want to put about £1,000 into Bitcoin and Ethereum every month. It will rate down or up how much it puts in of that £1,000 based on the movement of the coin during that month. So if Bitcoin is more than 10% down, it'll put £1,400 in, but if Bitcoin is more than 10%, it'll only put £600 in.
So it actually sort of smart invests based on what the recent movement of the market has been. Oh, that's very sophisticated. I should try that out. I just use the recurring buy feed for a coinbase.
Pretty cool. It's kind of like a rebalancing thing, but it happens automatically within the app. And it's pretty simple when you think about it. It's like, has the price gone up a lot?
Okay, I'm not going to put quite so much in. Has the price gone down a lot? Okay, I'm going to put a little bit more in. Right, quite cool.
Real estate for houses. Yes. The thing with real estate is that it's a pretty good way of making passive income. In that, let's say you own a property and you rent it out to people, and then they're paying you however much a month.
I've seen a property in Manchester, renting it out for about £1,000 a month, so making about £12,000 a year on the property. The issue with real estate... Oh, and the other thing about real estate is that you have a physical thing, right? No one's going to argue with the fact that you own the house.
If you need to, you can live in the house. Whereas if you need to, and you can't live in your 3% equity in Apple, that's not really a thing. If you actually have 3% equity in Apple, you probably would be able to live in it. Like, 0.00333.
The issue with real estate is that you have to have a lot of money to get started with it. Like, you need a lot of money for a deposit on a house. In the UK, if you want to do it as an investment, you need at least 25% of the purchase price. And if a house is 300K, you need 75K in cash to be able to afford that, along with all the fees on top of it.
And it's also not a very liquid asset class, meaning that it's very hard to get your money out of it, because it's a ball ache to sell a house. So if you need the money for whatever reason, you can't just click a person on Vanguard or on Hardware's Landstown and click sell. You have to go through that rigmarole of trying to sell a house. The fees on top of it is a nightmare.
In a way, real estate is interesting, because a lot of people, like probably in our parents' generation, got wealthy off of just buying a house and then not selling it. So real estate, like, it makes a lot of people accidentally good investors. Because the problem is, like, when something is really good, like, let's say your mom, or let's say my mom was investing in the S&P 500, she's probably the sort of person who'd be looking at that number every day. They'd be like, oh my God, I've just lost £100, I've just lost £200.
And that would affect her emotionally, and therefore she'd be tempted to hit the sell option. But obviously, like, all these investments that we're talking about, these are long-term investments. The money will always go up in the stock market over time, provided you don't sell at the wrong time. And the thing that real estate does is it forces people to not sell, because there's too much effort.
So if you could, like, yeah, that's kind of why real estate is good, and building a house is kind of nice, because it just has all these hallmarks, which accidentally make a good investment. It's so effortful that it locks you into holding onto the trade for so long that it actually works. Yeah. That's funny.
Yeah, I think you're right. What we've got at the beginning here is probably one of the easiest to put money into, in terms of stocks and shares, some sort of passive stocks and shares ISA in the UK, where you could literally do £30 a month. And then the other end of the scale, which is something which is quite cash capital prohibitive, which is buying a house. In the UK, 25% down.
I would budget 30% overall, which would include fees, stamp duty, solicitors, arrangements, surveys, and maybe a little bit of work, a little bit more. You want to paint this wall, I want to get some photos done, whatever it might be. To give my experience with this, I've just completed on my fifth house, which is all the same, 25% down on buy to let and interest-own mortgage, which means that I'm not putting any more equity into the house. However, it does mean that I get more cash.
It's a vehicle for generating cash for me. That's what I'm concerned about. So I don't want to pay any more into the mortgage than I need to. I don't want to put equity in the bricks of the building on top of the 25% that's already there.
What I want to do is just pay off what I need to to the bank in order to keep a hold of the house. Then the rent that comes in from the tenants, I want to clear off as much of that as I can over the top. Now, I self-managed all of my properties up until this year and then moved over to going managed. This would be choosing a letting agent to be the person that the tenants ring when the boy breaks, or when they snap a chair, or when they lock themselves out, or when they have a dispute about, you've charged us for cleaning when we moved out, and I don't want to.
I think, overall, if you're considering getting into property and if you're looking to do a buy to let, I think it's a good idea to self-manage, at least for a year. Reason being, this is going to be a significant portion of your net worth that's tied up in these houses. You are going to have conversations with the people that manage those properties, and you want to know what they're talking about. You want to know what the DPS is.
You want to understand about the local licenses that occur within wherever it is that you are buying. This is also another reason for, I think, purchasing bulks of properties within one place. Find a place that has a relatively good yield, and buy everything in that. Yeah, if you want to go and get holiday homes and sort of play around with things for Airbnb, then maybe you could do it that way.
But I think that there will be individual licensing quirks. In Newcastle, there's this strange C4, C3, personal license, HMO system that the council's got in place. It doesn't exist anywhere else. One of the first cities that's got in all the UK.
You need to learn that. If I decide to now go to Manchester, and the council has a different rating system, I've got to learn it all over again, because I need to work out. Should I be purchasing whatever? So you can actually reduce the skill acquisition or the knowledge acquisition overheads by choosing to learn one area once, and then just digging a bunch of money into that.
If you want to look at places to purchase, I would advise, ideally, near the way you are, you can go and deal with the letting agents one-on-one. You can have conversations with them. If there's problems with the tenants, you can go and deal with them. Other than that, if you are prepared, if you're somewhere that's very expensive, like London, that doesn't have fantastic yields, just go on RightMove and look at the places that have the biggest yield.
i think nottingham came back as number one this year there's places um i want to say bournemouth was one of them swansea was one of them newcastle manchester a lot of student towns so that would be an overarching theme another thing that i would say more bedrooms is better like just get as many bedrooms as you can in fact the way i try and look at the property purchases is how much is the cost per bedroom of this house so i can get in newcastle a three bed for around 120 but i can get five bed for about 150 so i try if i can to get higher bedroom properties because they're going to yield more and that means that you have to wait longer until you get them but yeah those are the two ends of the spectrum i think we've got stocks and shares put as little as you need and then we've got houses quite a lot of capital yes what is your well in fact actually capital gains is something we haven't spoken about yet which happens with properties yeah so if again it kind of varies depending on which country you're in but usually there is some level of tax that you get when you dispose of an asset so if you sell a house and the house has made money because it was when you bought it and it is not the house that you live in i.e it's a rental property then you have to pay the government some amount of tax i think it's like 20 percent of basic taxpayers and what's the percent of i can't exactly what number is it that's only of the increase in the property increase yeah of how much extra money you made on it and in the uk you have like a 10 000 pound year capital gain allowance uh that's why if you're investing in stocks and shares doing it through an isa and individual savings account i think that's what it stands for is useful because isas are always tax-free and so for example if you put in 20 000 like right now and 30 years down the line it had grown to i don't know 120 000 pounds but if it was within the context of an isa you wouldn't pay any tax on that 120k but if it wasn't you'd end up being taxed on the 100 000 pounds of gain you'd made on it and you'd be losing 20 to 40 000 for the government in tax so prices are very useful for that reason that's another thing it's a hedge having property is a hedge against inflation right uh yes um yeah people say that so the nice thing about properties is that if inflation is very high it means actually that your mortgage is getting cheaper because you're still paying the same amount of money back to the bank theoretically unless you have a variable rate mortgage but let's say you got a fixed rate mortgage which is fixed at in america they fix them like 30 years in the uk they fix them like up to five years yeah so let's say your mortgage is fixed at like an interest rate of two percent for five years and then inflation goes up to ten percent you know go forbid you're still paying just two percent extra um two percent uh each year and so the value of the money the money that you have borrowed to buy the house it becomes less valuable uh and therefore you're essentially paying off your house by default because of inflation also usually the price of houses the value of the house tends to increase greater than the rate of inflation in any case so you will earn money presumably on the house's value increasing over time the housing market only goes up someone said once and yeah that ends up with you hedging against inflation whilst having a capital gains vehicle that earns cash in the moment and also potentially earns you more cash when you come to sell at the end yeah that's another thing that's nice about real estate it's similar to some stocks uh you make money through the value of the stock price increasing but you also make money through some companies paying dividends to their shareholders so i don't know if you're just in Coca-Cola or something you might make a few tens of pounds each quarter when they put out dividends similarly with real estate you could make money when you sell it ten years down the line because the value is increased but you're also making money each month because you pay your rent so it's pretty nice but it really is a vehicle for which it's the rich average it's such a mighty principle and i see this i see this within my own experience so it took me from finishing uni it took me four years to buy my first house and then it took me two years to buy my second and then one year to buy my third and then six months to buy my fourth so there is just this perfect parabolic is that it? just this perfect line coming back in yeah you see it happen in front of your eyes you really do all right youtube how do people make money on youtube oh so anyways uh the most obvious one is youtube adsense oh google adsense those five second ads that paid before videos may be like this one people are watching it on youtube and on average people will make roughly two dollars one dollar fifty per thousand views so if this video gets a thousand views you'll be making two dollars nicely done um but also people youtube is gonna make money through sponsorships so you've got a bunch of sponsorships on your show um and roughly you can expect to be making very very roughly fifteen dollars per thousand views on sponsorship so again let's say this video let's say your videos on average get a hundred thousand views you can probably make fifteen hundred dollars through a sponsor that will pay fifteen hundred dollars for you to plug their fuel or whatever skillshare or whatever um to your hundred thousand viewers so those are kind of the two main ways to make money off youtube there's all the other extra bits like super chat and like subscription and stuff which is a very very small part of it um but really the way youtubers make the big bucks isn't through google ads or through brand deals particularly it's usually through creating their own products so they can then sell to their audience yes before we get onto that podcasts are pretty much the same you've got this episode is brought to you by that happens beforehand now we've gone from two very passive forms of income into podcasting youtube which is significantly more active so this is more for someone that actually wants a legit side hustle yeah i think it sort of depends how you define passive income like in a way the way i view youtube videos is that a youtube video is also an asset and an asset is something that puts money in your pocket whereas liability or investment is something that takes money away from your pocket and so if i put in three hours into making a youtube video that youtube video is sitting on the platform forever and it's making me money while i'm sleeping that's pretty cool um in fact most of my youtube videos will perform better than the house owner just bought a rental property because they make more money per month than someone pays rent oh but like relative to the amount of effort it was to make the video and the amount of money i put into the property my yield on youtube video or online course is so much higher than my yield on buying buying a house which is kind of weird when you think about it but yeah youtube videos podcast episodes podcast episodes not so much because you like get the money as one off as a brand deal unless they have to be on youtube where you're making the ads as well but it's kind of like anytime you make a video it's like you've just bought a rental property and that video is working for you and giving you rent every single month yes digital products you've said that this is one of the ways that online creators that build an audience can monetize more effectively yeah so um digital products are a subset of products generally i.e. selling stuff and the two broad ways you can sell stuff and this is like you know it's how they phrase it in i could sell you a service i could sell you the service of i don't know personal training you know because you obviously need a personal trainer i can provide you personal training as a service you can pay me for my time in giving you personal training as a service now if it just so happens that i built an audience based off of health and fitness content then there are some people in my audience who might want to pay me to be their personal trainer that's me selling the service to someone alternative that could sell goods and within goods i could sell physical goods or digital goods physical goods would be a youtuber saying hey buy my merch buy my t-shirt buy my mug and they make 7, 10, 20, 30 pounds on a t-shirt or a mug and some of their audiences some of their audience would buy their physical products i think the most interesting form is digital products i think it's more interesting than services and more interesting than physical goods and digital products is someone someone like peter mckinnon a photography videographer youtuber saying hey buy my lightroom presets or it's someone like always Bradley saying hey buy my online course or buy my notion template or buy my website template or buy my compact and there are people that have made millions tens of millions hundreds of millions off the back of selling digital products and the great thing about digital products is that you generally you make it once and then it costs you no extra money or time to give it out to sell it to five people as it does to five million people whereas if i want to sell five people a shirt i have to manufacture produce and sell you know manage five shirts if i want to sell five million shirts i need to get a warehouse it's a real nightmare selling five million shirts and it's a big hassle it's not at all a nightmare to sell five million copies of website template that's like free money basically the scalability on the internet is a sight to behold other things that people may have seen would be something like a workout plan a one-off workout plan that is different to having a course or a membership service that gives you workouts regularly so you can write a pdf that's if you're a PT you decide to write up 30 days of email workouts or 30 days of uh high intensity workouts whatever it might be that can exist on the internet let's say that someone has some sort of speciality and they think i want to teach people to they're a positive psychologist and they want to give someone a guide to the principles of positive psychology in a little ebook or something like that how would you list it and sell it in the most rich in this way um probably a website called gumroad actually i've got the guy who mentioned gumroad book phil lavingia he was supposed to be on the podcast this Wednesday we've got to rearrange uh they'll host it it'll look nice it'll be all freedom you don't need to learn out code exactly you just put a link on your youtube description it takes three seconds to listen to gumroad and then you can just literally start making mine yeah yeah online courses online courses online courses online courses are an interesting class of digital products because if you're a nerd and you're teaching something to your audience um generally okay so if we take a step back generally there's like uh the you can split up content into entertainment content or educational content and for people like you and me who are doing educational rather than entertainment content no offense um our audience is primed to think of us as teachers and therefore if we were to make an online course teaching the same stuff that we teach on our youtube channels maybe in a bit more depth maybe with a bit more structure then the audience of our youtube channel is primed to be also interested in oh i wonder i wonder i want to hear chris teach me about passive income i want to hear chris teach me about his morning routine i want to hear chris teach me about how to launch a podcast and he's done about the whole podcast thing and then i think about an online course again is that you just record it once if it's a kind of self-paced online course you put the videos up online on a website like podia which is my favorite or teachable or there's all these platforms where you pay for like $29 a month but they host your product they handle the payment they handle the checkout page they handle the forgot password use the login you don't need to learn code or anything you just literally upload your videos and then within a minute you can start selling an online course to your audience and online courses are how i've made the bulk of my money over the last like 10 years passive online courses but also this new class which you capitalized on which is cohort based online courses what's the difference there yeah so we've got passive online courses which is the the traditional thing you might expect from online course you sign up you pay maybe a few tens or a few hundreds of dollars and then you've got this library videos that you can watch through at your own pace basically a passive online course is glorified youtube videos just in a structure with a paywall behind it this is really convenient it's very convenient for the creator because they just have to record them once it's quite convenient for the viewer because they can watch it at their own pace exactly it's like with netflix you can watch a whole season in one go if you really want to you don't have to wait for the next episodes to come out the issue with online courses is passive online courses is that they have a famously low completion rate like i signed up to dozens of online courses that have never even once opened or watched the first few lessons and i'm like i can't be able to do this anymore that's what most people like like i think 2% optimistically is the completion rate of like a generic passive online course and so there are people who have been like okay online courses benefit from scale of the internet but if you're really thinking about offering a transformation to your students they're unlikely to get it through a passive online course unless they're particularly self-motivated so now there's this whole new vibe of online courses uh that they call cohort-based courses which is sort of actually mimicking the way that like real life education is done like when you sign up to do a degree you want to sign up for an online course you can watch at your own pace although depending on what you do that ends up being the case and you end up teaching yourself exactly yeah in fact even pre-pandemic most of my school teaching was through youtube videos um but that aside you know you're paying a large amount of money you're getting this experience you're part of a cohort you're part of community people you're getting these live lectures you're getting these workshops these tutorials these divisions and at the end of it you get some sort of skill some sort of qualifications some sort of you become a doctor maybe if you're doing medicine a live cohort online course is trying to do the same thing just doing it over zoom rather than in real life i run one called the future academy where every three months we run a new cohort it lasts for somewhere between four and six weeks we change it up depending on how we're feeling and twice a week i rock up to zoom call i teach people for two hours for live sessions and then we have a bunch of interactive things we have a bunch of small teaching sessions that's a lot of work it means we can charge more for it so we charge at the moment between $15,000 per place it's still way cheaper than a similar course would be in real life but it's way more expensive than a passive online course would be but hopefully it's good for students who can afford it because they recognize that it's sort of like you don't need a personal trainer to work out but and you definitely could get injured by yourself by following an online workout plan or just doing it yourself but for a lot of us who don't have a lot of time on our hands who don't rate our own motivation or accountability very high having a personal trainer is really really helpful similarly you could do a course passively online and if you're self-motivated enough to get the value from it then that's fantastic i think where live co-host benefit is in the accountability and community that you get around it not so much content which makes people do the thing more because often the barrier between you know if you think about if you listen to this and you want to start a youtube channel or a podcast the reason you haven't yet is not a lack of information the information is like it's all freely available on the internet the reason you haven't is because you haven't got that push you haven't got the accountability you haven't got that community so that's what you're paying for in a live co-host course so i recommend you start it shows i think the importance of compliance that if you get someone to actually comply to the things that you do the vast majority of people are going to see results and what you get is this feeling of discomfort when you do a cohort based course especially if you have tasks that are supposed to be handed in each week so with yours all i want you to do by the end of this course is recording a youtube video every single week and you see other people posting oh god i haven't done my youtube video yet so yeah there's there's an interesting i'm sure this one's probably created a matrix of the amount of work that it takes for the creator and the amount of money that you can get back from the customer in terms of this it is more effortful to do a cohort based course significantly more more time consuming but also the amount you can charge and the results you get for the customer if you have a single delivery digital product that is literally a one and done if you have a passive consumption for an online course there's usually some form of community sometimes alongside that like some sort of facebook group or something or circle where you can go do that um i think that with those particular areas of skill sets you really i'm right in thinking you probably need to aim a billion audience organically with something like a podcast or youtube or instagram before you then try and launch a course like just launching a course off your own back posting it on your twitter to your thousand followers and hoping that someone might be a poor way to invest your time yeah um this is a bit of a bit of nuance here so i think a passive online course if you have a small audience it's not really worth very much because if you think if you have a thousand followers on twitter maybe if you're really lucky 10% of them will buy your course more recently than 1% so let's say 10 people 1% of your audience buy your course and let's say you charge i don't know 100% of your course you're making a thousand dollars which is which is good money but it probably took you like a large amount of time to put this course together now let's say you have the same thousand followers on twitter and they are following you because they know you forget about this one very specific thing and you create a live cohort online course on it about the thing and let's say 0.5% less than that let's say 0.5% of your customers decided to buy the thing but you're charging two thousand dollars for it instead now you can have this like very a very intimate experience with these this very small group of people that knows and trusts you already they want your expertise on the topic and they're happy to pay you two thousand dollars for it so in fact if you sell five of them you've made ten thousand dollars and if you do that a few times a year you've made a full time living off the back of a thousand followers provided the value of providing it specific enough for people to want to pay for so i think in the old school model of like passive stuff passive courses it very much is the case that you should build the audience first and monetize the audience second but i think you actually can monetize an audience that's quite quite small if you want to through the back of a coaching program or a live live cohort course i still wouldn't recommend it i still think as gary banefett would say it's better to put your effort into growing the audience before you try and monetize it but you know when you've grown the audience enough uh the way i think of it is like at what point if i monetize my audience now would it be an interesting amount of money that would change my life in some capacity so if i had 100 people in my audience and i was making $10 a month it's not worth it if i'm making $100 a month it's not worth it if i'm making $1,000 a month it depends what life you're at but when i was younger $1,000 a month for me would have been sufficiently game changing to warrant doing monetization whereas $100 a month it means i can get extra few takeaways it doesn't add anything meaningful to my life so that's how i kind of think about it um i'm sure there are other frameworks as well i was talking to you earlier on about fitness and some of the ways that people monetize in the fitness industry they really have turned this up to 11 the one thing that they haven't got hold of yet are cohort based courses so no one really in the fitness industry as far as i'm aware apart from fit pros teaching other fit pros to make digital products that is one that has because they're so far ahead of the curve but no no one really got into transformation cohort based courses in the way that i think you quite can yet they'll bundle people together and say begin this and in six weeks time we'll all post our progress photos but it's just not quite the same because the consumption of the product that you're doing is inherently in the real world as opposed to in the digital world so going through it together it's like oh today's workout was hard but you weren't there i mean it wasn't like i didn't watch you do yours and you didn't watch me do mine but certainly pts that are out there there'll be a lot of people that are pts that are listening or work in gyms you have a captive audience they're the people that you train week in week out you have maybe 30 clients 40 clients perhaps you deal with every single month they are people that you can monetize off the back of if you want to write a nutrition guide if you want to do whatever you could even offer it to new clients as a bonus for them coming on you could sell it to old clients that have lapsed i i think it's just a nice way especially if you have expertise in an area it's such a nice and easy way to just add a little bit of extra money on that being said it is effortful you're gonna have to write it um for digital products teachable podia kajabi for online courses cohort based courses has anyone got that platform right yet uh there's lots of he's trying to build it there's one called Virtually that we sort of use another one called Koolip which is run by some friends of mine no one's quite got it fully right yet people are working on it we use a combination of Virtually Google Sheets Zapier or Zoom it's a bit of a janky setup that's a duct tape everyone I know that does cohort based courses has this super village like cottage industry cable tied together just using if this then that frameworks and Zapier to hold desperately trying to hold the business together so cool video that kind of stuff yeah disgusting affiliate marketing affiliate marketing the idea here is that instead of selling your own product you're selling someone else's product and you're getting a percentage commission so the biggest affiliate program in the world is Amazon Associates basically anyone can sign them to be an affiliate for Amazon so that let's say you do a video reviewing I don't know the latest Sony camera and you put an Amazon affiliate link in the video description if someone buys the product through your affiliate link you make maybe somewhere between a 1% and 3% commission which if they're paying $3,000 for a camera is actually not bad $30,000, $90 I think if my math is right if they're paying $4,99 for a Kindle ebook you have to sell a lot of them to make any decent money off of that so that's how affiliate programs work Amazon gives you very low commissions like broadly speaking but if you can partner up with individual brands I work with something called Paper Liker keyboard company called IT Unix at that point you can negotiate things like 10%, 20%, 30% sometimes even 50% affiliate commissions off of the things that you sell and it doesn't have to be digital products or physical products it can also be online courses so I'm an affiliate like my friend Pat Flynn's and Tiago Fortier and David Perel's online courses we've got to buy affiliates for our course it's really like a win-win way of selling someone else's product that you believe in that your audience will then be more likely to buy because you've recommended it and you get a commission on it it's like being a salesman but on the internet yeah everyone believes in something there are all things that we rate I rate my mate's barber's shop because that's where I go and I know that he'll look after your hair I rate that club night now you're going out on a Thursday you should go to this particular place all we're talking about here is formalizing that agreement getting a bit of a kickback I think affiliate marketing in some circles kind of gets a bit of a bad name because it creates a perverse incentive for someone to oversell you on what kind of sounds like a personal recommendation but that being said that identifies why it's such a low amount of commission that Amazon sells you or offers you because you can sell anything the fact is that everybody needs something and they're probably going to get it on Amazon and if you're the intermediary what have you done what were you there for it was either the Oral-B Diamond White or the Philips Sonicare and you just happened to direct them one way or the other but you haven't actually brought any trade here it's funny that you talk about if you manage to sell someone on an expensive product versus on a bunch of Kindles I have got affiliate links in all of the e-books that I've released so the Lifehacks list and in the reading list as well both of which have got all tracked Amazon links which I just thought would be interesting and it's passive income so why not and I looked it took a long time to write the 100 books reading list and the entire amount of all of that income has topped up to about £12 I think because you're talking about £3 Kindles some of them are free some people have got Audible subscriptions so they're just using it on their Audible which means I don't get anything and then one guy because you can actually track what product brought people to Amazon on your Amazon affiliates back end what brought people to Amazon and then what did they buy downstream from that and this one guy bought a PS5 so some people went on to buy the almanac of Naval Ravikav and then bought a PS5 and I was like yes £10.50 that was like the big earner for the year yeah so funny man but yeah are there any other affiliate marketing easy access affiliate marketing platforms or sections that you think people should take advantage of yeah I think if you have an audience and you have a product or an online thing that you like the first thing I would do is Google have they got an affiliate program so like the other day I started watching some masterclasses and I found that they've got some it seemed like it was active some of the time and not active some of the time the other option is if they don't have an affiliate program you can easily sign up to is you can just email them and say hey have you watched an affiliate program and I've had success in companies setting up an affiliate program just for me because I emailed them but I can say look I really like this keyboard I'm pretty sure I can drive a lot of traffic to your keyboard can you please make an affiliate program here's what I recommend and they're like after a few months yeah right and then it works so you can do surprising things like that that I wouldn't have thought about otherwise yeah it's um it is funny it is funny how you're able to make money online in that way how people creators online should improve their trust with their audience yeah yeah that's a tricky thing because you know what they say it's like you know it takes a lifetime to build up and like an instant to lose and I've certainly done a few times where we put out a video where it's kind of because we just had a deadline coming up and I didn't really stand by the value of the video but we put it out anyway and A that always feels really bad for me but also people can tell like oh this was a throwaway video this wasn't the usual quality and really I think trust is built up by showing up regularly and by delivering value the way Gary Vaynerchuk puts it is like anytime you give someone something for free like valuable content for free you're adding to the goodwill bank bank balance with that person and anytime you try and sell them something generally you're withdrawing from that bank of goodwill and so he advocates a strategy he calls it jab jab jab right hook where a jab is giving someone really valuable content for free and a right hook is asking them to buy something from you and he famously says that he's written a book called Jab jab jab right hook and he says that if he could he would have named it jab jab jab jab because that is the ratio of how much you should be helping people out with free valuable content compared to asking them for the sale but he wasn't allowed to name it that you end up with latent leverage which is what Jack Butcher calls it the fact that you have all of this goodwill that's built up and built up and built up and then you finally ask people for something so when the life hacks list released last year my convert kit got shut down because on the first day that we launched it we did 5,000 email addresses and they presumed that I bugged something or I'd broken something and I had to actually get in touch with the COO on Twitter to say dude I'm driving a lot of people to this landing page please get them to reactivate it and he gave me a call actually who's really really kind and said I'm really really sorry but congratulations on the launch it's going well but that what that taught me was that I left it too long before I'd started capturing email addresses for my audience because if I had so much latent leverage sat there three years nearly 200 episodes of a podcast or more and I'd only just started asking them for even that was free even though I was still adding value I just wanted an email address in return that kind of made me think okay I probably could have done this a little bit sooner and that's an interesting thing to consider you can wait too long to do this too and yeah jumping finding the right balance I think when you've built up sufficient goodwill a good place to start must be to build an email list because that is a halfway house exactly yeah so the way a lot of online marketing funnels work is like you have people coming in through your website through your YouTube channel or Instagram or TikTok or whatever and you want to get them onto an email list because you don't really own that audience in inverted commas you don't really own that audience when it's on someone else's platform YouTube owns the audience or TikTok owns the audience but you do really own that audience when you have an email list like when you have someone's email address they're giving you permission to show up in their inbox assuming you don't get spam filled by Gmail or whatever and so really the first step and almost from day one it's sensible to start building an email list and it's a very easy thing to do you've got your email newsletter which is fantastic and you're delivering value week after week where people have signed up to hear from you and therefore maybe once a year when you launch a product you can email that list being like hey guys I'm launching this thing if you want to buy here's a link and those people are primed to buy from you because you've been showing up in their inbox building up your trust with them week after week for a long period of time yeah yeah that's a good one what would you use what would you advise someone to use let's say they think I have a little bit of an audience I want to start building an email list what's the easiest most frictionless way to do that ooh a few different platforms these days so SoftZack and Review are free Review is actually built into Twitter so I actually have my email list on Review for like three years before I moved to ConvertKit so Review is what I recommend R-E-V-U-E once you're ready to take email marketing a bit more seriously you can switch to something like ConvertKit which is very good but it's quite expensive so after your first thousand subscribers which are free so I'll start with Review or SoftZack yeah the thing I like about Review is it's got on your Twitter account once a week so you can take advantage of the frictionless sign-up on Twitter but then pull them across on your main ConvertKit yeah that's what we do we use that for that as well ooh you can have to send me that you can automate it yeah anytime someone's signed up to Review you can make us that in three seconds that sends out some ConvertKit that's sick okay I didn't know about that membership sites membership sites so the idea here is that you get some of your audience you charge them a monthly membership fee and bring them into some sort of premium offering Patreon is one example of a membership site where the vibe of Patreon is hey support my work for $5 a month and in return you'll get early access to my videos or you'll get a live Q&A with me every month Gary Vaynerchuk often says that if someone is your superfan the thing they'll pay for is more access to you so more of your content more of your behind the scenes that kind of stuff that's one way of doing a membership thing and the nice thing about a membership is that people will pay you monthly so you've got recurring income the annoying thing about a membership is that you do then have to be showing up every single month to provide value otherwise it's a bit unfair and so actually I tried to do a membership thing with my YouTuber Academy we called it the Inner Circle which was afterwards for alumni charging $50 to $100 a month and we had like weekly events going on we had a lot of activities but even with weekly events and sometimes twice weekly events I still felt we weren't providing enough value compared to the biggest amount of value we provided in the course and so we ended up canceling it after six months and just refunding everyone any money they ever paid which was like $150,000 worth of refunds that we did but it was for the sake of that trust because I was like no there's no way it wasn't fair for us I didn't feel good about charging people for that value that we were offering so Patreon is one way to do a membership you can build your own membership site using something like Ghost which is what I use for my personal website which is very good there's a few other options like page newsletters and Substack you can get people in through YouTube page subscriptions which is built into YouTube where you can get them into a Discord community there's all sorts of different ways of doing membership content but the idea is that some of your audience will be happy to pay a certain amount of money each month but if you want to be integrity about it you want to give them decent amounts of value every month you can't just put people into a group and hope for the best so Locals which is the platform that I've just started using one of the reasons I really like that over Patreon and I've vacillated for ages and ages thinking do I want to use Patreon do I want to go with Locals I ended up choosing Locals mostly because it permits inter-community bonding so community members can post in there they can have discussions between themselves every day an episode goes up there's a thread talking about it whereas Patreon because it's established and there's an expected modus operandi on there it's here's a new piece of content for you enjoy here's a new piece of content for you watch here's a whatever like a little update or something it doesn't feel as organic and natural so Locals for me felt like a really really good platform choice there's another platform that's owned by Patreon and I think it's called Memberful oh yes the Paywalls yeah Paywalls WordPress sites so let's say you've got a WordPress site that you want to have some work behind a Paywall on it and they can integrate that I think there's a way that they can actually integrate those member lists with some other fancy things through Zapier or through IFTTT and yeah that would be interesting why don't you go for Patreon plus Discord I wanted everything to be in one site I also think that Discord itself as a platform is a very particular portion of the internet that understands what Discord is knows how to use it and although most people would be adaptable I felt like Locals was just such a frictionless it's built for conversions it's built for creators you click on the link there's a big button that says join email, password, sign up click the confirmation and you're in and I spoke to you as well yeah beautiful photo of the Popeye arms someone accused me of looking like who's that guy from Fast and Furious that died? oh I can't remember his name Paul Walker cross between Paul Walker and Popeye which I took as a compliment I took as a compliment but it might not have been automating a business what does that mean?
automating a business a good reading on this is Tim Ferriss's 4R work which kind of I guess I still have to fulfill the orders I have to figure out a way of like you know getting the customer size getting the payment from the customer printing the t-shirt they want printed or getting it shipped from my warehouse to their address tracking the files to their address making sure they're happy with it having someone monitor the support inbox because if they email me for whatever reason I need to be able to reply to them having someone deal with refunds if for whatever reason their t-shirt didn't arrive there's a lot of stuff associated with that now if you're trying to do this all yourself it ends up taking a large amount of time and you realize hang on if I want to scale this business I don't have enough hours in the day to be able to manually package up and ship out all my orders and therefore you can start adding ways when a customer emails our support inbox I want it to automatically send a ping to our Slack channel which my support person is handling so they can reply to the message immediately if someone sends an email with a word refund in it I want it to automatically refund them on Stripe or PayPal without even having to think about it because I don't really care there's all these different things you can do to automate and delegate aspects of your business which is ultimately what you need to do to scale because your own time as a business owner is limited to 24 hours a day and as a business owner you can probably do more valuable things and then reply to refund requests all things like that so this is about freeing up time around the business as opposed to particularly creating separate streams of income yes generally you probably could create separate streams of income if you had a business with some automated elements that would be a bit more unusual generally automation and delegation is to free up your own time and then that makes you a business a bit more passive so a lot of passive income sources fell out as being very active and then you passivify them through automation and delegation yeah building an app on a website building an app is pretty hard is that right? yes no it sounds like a nightmare building a website is easier tools for websites and stuff HTML, CSS fairly easy to learn you can learn those in about a week if you find a YouTube video if you end up with it a little bit there's all this stuff around progressive web applications there's ways of building iOS and Android apps through building a website and porting it onto Android and iOS it all gets very complicated I think the thing is if you can build a website there's a branch of software called software as a service SAS S-A-A-S that is where so something like Patreon is actually software as a service Patreon has built the software that allows memberships to work and therefore when creators sign up to Patreon they're paying a subscription or paying a commission to Patreon something like PayPal is really software as a service it is a piece of software that allows people to accept payments when I was in school my brother and I built something called BMAT and QCat Ninja which was software as a service it was a website that allowed people to subscribe for £30 a pop to do questions to prepare for their medical school entrance exams these are all the things these are all things that you can do if you want to build a website from scratch it's quite hard to do that but I mean most like Uber is an app which someone built Twitter, Facebook all these like incredibly high valuation really good successful apps or ultimately someone starting off building Facebook in his dorm room or building Hot or Not in his dorm room it's an interesting skill to have and I still recommend to this day if anyone wants to get rich on the internet learning to code is a really useful skill to have but it's not easy Is there anything you've missed off because you did this video a while ago about different passive income streams and we've gone through some of them today looking back is there anything that you've developed since then I think one interesting that we haven't really talked about is coaching and we mentioned it a little bit with the personal trainer stuff but if you can become a coach for someone I know a lot of personal trainers do online coaching whereby they don't even need to be on a Zoom call with someone they can just sort of create like a workout plan and for example AthleanX probably has an online coaching program he's probably not the one actually tracking people's macros and stuff there's probably some level of automation and delegation there so I think that coaching is an interesting income stream because you don't need that many coaching clients to make a decent amount of money if you have a small audience you can monetize them pretty effectively for coaching provided you're teaching something useful you provide value to your audience so that's an income stream that people can double with if they want Chris Sparks has an interesting article about that talking so just search Chris Sparks and consultancy I think he called it and it was just discussing how people don't really see service-based businesses on the internet the same as many others he was identifying the fact that a lot of weight lies on your shoulders if you want to be whether that be an online coach or a mindset coach or someone that's helping someone with teamwork or working through relationships or dating advice whatever it might be it is great but the scalability of that is inherently downturned because you for the most part part are the person you're the product one half an hour of your time equals one half an hour of your customer's time which means that if you want to work eight hours a day you can only have 16 customers a day as opposed to the scalability that you get from products yeah coaching is a very it's not passive unless you find it which kind of takes away from the trauma of being you as a personal coach yeah yeah so to recap we've got differing amounts of input in terms of both time capital that we need to use looking to try and have a spread of a variety of income streams possibly good because it hedges you against different markets i'm moving up or moving down it also means that you can monetize more effectively across different streams and building an audience going audience first adding value first thin end of the wedge over delivering on the freemium side that is something that's going to help anything else what else has been missed off from the recipe for success um i find like when thinking about passive income uh i kind of often think of the three c's which is i think that involves capital code and content and you can make money through capital by investing in real estate you can make money through code by building a website you can make money through content by creating youtube channel podcasts instagram writing a blog writing book all that kind of stuff and then you've got the actual traditional businesses like selling a thing or selling a service and then applying the delegation automation processes to that but capital code and content have an unfair advantage in that they benefit from the scale from uh pre-existing passiveness i.e. capital and the internet i.e. code and content whereas a traditional business you have to do a bit more extra work to make that into a passive source by delegating and automating and even then traditional businesses are so much lower margin like you know if you're selling a physical product it's just going to be lower margin if you're selling a piece of code or a piece of content so that's sort of how i think about it in my head i think might be useful for people to have that framework i like it ladies and gentlemen if people want to keep up to date with what you do give us chill your online wares yeah