Unfortunately many people use the term “passive” when they mean something quite different. Most frequently it’s confused with the act of decoupling your time from your earning potential (i.e., when you stop trading a set amount of time for an hourly wage).
Completely passive income is the result of a “set it and forget it” investment. Some examples can include:
- Retirement accounts
- Investments in stocks and mutual funds (provided that you’re invested for the long term and not frequently buying and/or selling), especially those that pay a dividend
- Certificates of deposit
- Savings bonds
- Part ownership in a company that someone else runs
- Lending your money to other people (it’s only passive as long as you don’t have problems with repayment!)
- Create an asset that generates income:
- write a book or e-book
- buy/register a patent and license it to a company owned and operated by someone else
- write software though if it requires updates and/or support, it might fall into one of the other categories below
- videos, music, and other media
- artwork including photos, paintings, plays, etc.
Some people will setup a system for generating income. These usually require your time up front as well as some time to keep it going, but it’s not a typical “trade money for dollars” scenario:
- Owning your own company — the more you delegate, the closer it approaches being passive income
- Investment real estate, whether or not you manage the properties yourself
- Selling a contract or subscription that continues to provide income while it’s in force or when it’s renewed (herbal supplements, personal care products, insurance, service plans, etc.)
- Vending machine routes
- Multi-level marketing programs (after you have people setup beneath you)
- Selling your services to as many people as possible to earn much more per hour than if you were an employee:
- Teaching classes, seminars, etc.
- Hosting meetings, conferences, or conventions
- Performing at a concert
- Websites including blogs - they can generate traffic and cash flow even when you’re not at the computer, though they do require ongoing work
With current passive income in the $100/month range (not including retirement accounts) we’re nowhere near covering our monthly expenses. Fortunately, there are lots of opportunities for earning more money, some more lucrative (or more fun) than others. If you’re not happy with where you currently are, conduct some research then takes some steps toward achieving alternative revenue streams. I know I will.
Note: Please feel free to make recommendations and suggestions. I’m always looking for new opportunities and points of view!
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…great post and nice summary.
Reminds me of further potential to look into.