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Passive Income – What Is It

If you have ever been to a finance seminar, “how to get rich” conference, or read a Rich Dad,Poor Dad book, you will have heard this term. “Passive Income” gets thrown around a lot and has become overrused in my opinion. Nonetheless, it is an idealistic concept that is important to know. It can change your outlook on how you make your money.

In A Nutshell

Passive income is money you make from rental property, corporation, or enterprise that you are not actively involved in. Sounds nice, doesn’t it.

Active income is the opposite. This is for most of us, our job. We have to be at work by 9, leave at 5, collect our paycheck, and do it again. If we don’t show up for work anymore, we don’t get paid anymore.

Portfolio income is the other option. These are investments or anything else you could put in an investment portfolio.

Finance Conferences and Workshops Keyword

All the books and seminars love this word. It is the ideal situation everyone would like to be in. Have all their money come from passive income. It is an achievable goal, believe me, but it takes a lot of work and for most people, having a mix of passive/active income is the most likely scenario.

Why You Should Want It?

A few reasons.

  1. Earn more money without having to do that much more work.If you work for an hourly wage, you have to work twice as hard to double your income. Passive income sources require work up front and maintenance work down the road, but they are rarely require twice the effort. If they do, get out of them.
  2. You become less dependent on your job.If you quit your job or get let go, you will still have some income to cover expenses. Softens the blow. If you want to take a leave of absence from your work, passive income can pay those monthly bills as well.
  3. Eventually, you can be free of needing a job.This is when you can have enough passive income to cover your expenses. This takes time, but people have done it.
  4. Investing time/money in passive income sources will generally give you more assets and a greater net worth. You can sell the source if you needed money in the future. It is kind of like putting money into a savings account.

Examples of Passive Income

Passive income can be a variety of sources. They aren’t all 100% passive. You will need to watch them and invest some time into them on occasion, but they aren’t a active job you are doing.

  • Royalties from copyrighted material (books,music,video,educational materials).
  • Rental income from real estate (this can be a job if you make it that way).
  • Royalties from patents and inventions.
  • Advertising from web site content.

I know. You can argue that some of these are jobs, but I can argue that some of them aren’t as well. The point I’m interested in, is that there are things out there that if you invest some time in them at the beginning, they will not require as much work later to continue paying you back.

Rental Example

My wife and I purchased an up/down duplex in Calgary. We don’t need a big house at this time, so we were interested in having a rental opportunity. We bought the house, fixed up whatever needed fixing, and then put an ad in the paper. Our renters pay us every month and we can put that money in the bank. We get a few tax-writeoffs for our house expenses and still have to pay tax on the rent money.

Now we still have to do work. Make sure the tenants are happy. When they leave, go repair anything thats needs fixing, pay for any advertising, be around to show the place to people looking, and the list goes on. There are a lot of responsibilities. But you know what, that is what they are. Reponsibilities. If you are responsible to make sure things are in order, then everything runs smoothly.

If I added up my time and how much we have made from it, it pays a way better hourly rate than my current job. I can go months without doing anything and then work a Saturday to do some minor repair and inspect things. I can also have someone else to look after the place when I’m gone for a month. I can’t do that with my normal job.

Other Examples

Royalties from books, patents, and music is a tough one. These require a lot of upfront work and some talent. They also will need some marketing after the fact, but once they get rolling, can provide royalty payments for years to come. It is these types of passive income that can really shoot your income up.

Advertising on web sites is another one that is very popular right now. This takes work though. It is what this website is about. Google Adsense and a lot of other ad programs will help you get ads on your page and pay you for it.

If you write an article two years ago and people still view it today, you still have a potential revenue source without having to do any upkeep on it. This still takes a lot of time to build the site and market it. There is the added flexibility of being able to maintain it anywhere there is an internet connection.

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