On Passive Income
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Conventional wisdom says that in order to be "successful" you have to graduate from high school, choose a career, go through college, get a degree, find a job, work 40 hours a week, get a paycheck every two weeks, pay your bills, save what's left over, work for 25+ years, retire at 65, live off of your social security, pensions, and whatever else you managed to save, die surrounded by your family and friends, and be buried on a sunny and crisp autumn morning. In addition, you are to find the time to get married in your 20's, start a family, and raise your kids until they are 18 or finished with college.
Conventional wisdom says that alternatives to this way of making a living are too risky, unsafe, unreliable, and unacceptable in our society. But what if you get injured or ill and can't work? How does conventional wisdom pay the bills? What if you realize somewhere down the road that you really don't like what you do for a living? How does conventional suggest that you handle this?
After working in traditional jobs for over a decade and reading more and more about how "wealthy" people create income, it occurred to me that I could change how I perceive wealth creation, and in essence live the life I always wanted to. That's when I came across the idea of passive income.
What Is Passive Income?
Passive income is a simple and straightforward concept. I mentioned in an earlier post on how to make money on the internet. You take the time and put in the effort at one point to create something, and you make it available for others to buy it easily and continuously. That last part, "continuously," is very important. It's what separates passive income from active income. Active income is what most of us are used to. It's the 9-5, Monday-Friday, 40 hour work week. We must be there to do a job in order to get paid. We must put in substantial work effort every time we want to get a paycheck. Passive income is the opposite. We don't need to be there (e.g., at an office) to get paid. We put in the work and effort at the very beginning, and after that we can go on to other things in our lives yet still get paid for that initial work on a continuous basis.
When I did work as a psychotherapist (and even now as a nurse), if I didn't show up to see clients, I didn't get paid. That's how most jobs are today. Don't show up, don't get a paycheck. But utilizing passive income approaches to supplement or even replace the income from a traditional job makes this issue irrelevant.
The Principles
How does it work? How can you get started living on passive income? Well, there is a lot of time and commitment involved, as with anything worthwhile. But with patience and (due) diligence, the rewards are bountiful. Consider the following exercise. Look at Bill Gates, Steve Jobs, Warren Buffet, and Donald Trump. Now, look at your neighbor who owns the house next to yours but rents it out. And look at family down the street; they operate several websites that have nothing but advertisements on their web pages. Or look at your child's high school classmate that loves nature and photography; he makes calendars and postcards with his pictures and sells them on the net. What do all these people have in common? They are involved in creating passive income.
Like I said, it's a lot of work. But that work comes at the beginning. For example, we have an online store that sells, among other things, t-shirts with our logo on it. It took some time for me to figure out how to use a graphics program, and it also took a while to research internet companies that would be able to put our designs on shirts and provide with an online site. After that was done, the next hardest thing to do was create the designs. But when that was accomplished, it was just a few clicks of the mouse, and ta-da!!! The shirts are now available for anyone with internet access to buy. The best part is, we don't ever have to be there to handle the sale, any returns, or ordering of the inventory. The company (cafepress.com) handles all of that. All we have to do is update the site once in a while, do some marketing to let others know of our store, add new designs once in a while, and wait for our checks to come in the mail.
People do these sorts of things every day. They may not realize it's passive income, but it is. They make money in their sleep. They may not necessarily be selling t-shirts online, but the idea is that they have set up systems where they get paid on a continual basis, after doing some initial work and investing, and they don't have to put in that same amount of effort and time ever again! Of course, you will get out what you put in. If you set up a store and just sit around hoping to make a sale without doing any marketing, you'll have one sore butt after a while, and no sales.
It's More Familiar Than You Think
But consider another example. Donald Trump can take off all of next year and not have to worry about making money. He'll have money coming in from his rental properties. This is another thing that many are doing right now. Many people own a few homes and rent them out. They have a continuous source of income every month. Hopefully, they structured it correctly to where they have positive, and not negative income every month, but maybe that's for a future post. But the idea is the same. They put in initial time, effort, and work (not to mention invested a few bucks) by researching the right property, trying to get the right price and mortgage deal, and finding the right tenants. The work required to maintain the rentals is not as time consuming compared to getting started. But think: Can't make it to work next week because your kid is in the hospital? That's ok, I've got monthly income from my rental. Want to take the whole summer off and travel to Tahiti? No problem, my rental property income will cover that.
The concept of passive income can be applied to many situations. Burt Bacharach continues to get paid today for songs that he wrote decades ago. He collects royalty checks. J.K. Rowling continues to get paid for Harry Potter book and movies, all based on the passive income source of royalties. Recording artists do the same. So why can't you? The internet has become such a vast resource of tools and information to get started in any venture you want. The initial process takes time and in some cases financial investment. It can be rough in the beginning. But what if you had several sources of passive income? And what if your passive income exceeds your monthly expenses? Would that mean that you didn't have to show up for your job everyday, or show up at all?
Live The Life You Know You Can
Passive income, I believe, can lead to financial freedom and time freedom. Remember, you can work for someone else, put in 40-80 hours a week and collect a really fat paycheck. You can have financial freedom. But the trade-off is that you have no time freedom. Your time is used up by your employer. Conversely, you don't need to work; you can sit at home and watch the Food Channel all day. However, you won't have any finances. Without both financial freedom and time freedom, you cannot have personal freedom. Ultimately, creating systems of passive income will lead to personal freedom. That's how the wealthy and "successful" people do it. That's how I can do it. And that's how you can do it, too. I want to, again, recommend Matthew Chan's book The Intrepid Way: How to Create the Freedom You Need to Live the Life You Want! as great resource for learning how passive income changed his life, and how it can change yours. This topic goes beyond the scope of this one post, and perhaps this whole site, but we will continue to promote, discuss, and help educate our readers through our blog entries.
-RY
(As a sidenote: I originally wrote an even longer and much more detailed entry on passive income, but unfortunately, the blog software erased it as I was creating a link to Matthew Chan's book. Maybe it is actually fortunate for readers that this is the abridged version!)
(UPDATE: 11/23/06 - A few headers put in to (hopefully) make it an easier read.)
Trackbacks
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4/13/2007 10:07 AM
Passive Income wrote:
Welcome to the Carnival of Passive Income for November 16, 2006. Thanks to everyone who participated! If you have an article you’d like to submit to the next carnival, scroll down to the bottom of the post to find out how to submit. Andy pre... -
12/14/2006 2:54 AM
ThoughtfulConsideration.com wrote:
. . . . . . . . Thank you all for participating in the inaugural edition of The Carnival of Thoughtful Consideration! There are some wonderful submissions, and I look forward to learning from you through your posts. Wit...
This is a great post! I particularly enjoyed the reminder that there is work up front, but it pays off. There are quite a few of us who have grown tired of trading hours for dollars.
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Andy,
The hardest thing about passive income seems to be the upfront work, but when I think about the ALL the possible benefits, it just outweighs any negative in the long run. Passive income goals are long term target goals, and I'm realizing this as well. No overnight get rich quick ideas seems realistic. I'm glad there are others out there that feel the same way.
-RY
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Passive income sounds great. But in still seams unattainable when you have $0 to invest and little education.
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KENNITH, THE WHOLE PROCESS IS ABOUT LEARNING NEW WAYS TO MAKE A LIVING INSTEAD OF WHAT IS ROUTINELY TOLD TO US WHEN WE'RE GROWING UP. THIS SITE HAS SHOWED ME THAT IF YOU HAVE AN INTERNET CONNECTION, THEN YOU ALREADY HAVE A WAY TO MAKE PASSIVE INCOME OPPORTUNITIES COME TRUE. YOU CAN START WRITING FOR FREE LIKE IS STATED ON HIS POSTS ON TRIOND AND THERE SITES. WHAT EDUCATION DO YOU NEED? YOU'LL BE LEARNING AS YOU GO.
SORRY FOR THE CAPS...KEYBOARD IS MESSED UP.
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