If you search the web for “passive income”, you may find a definition or two, but mostly, what you find are websites selling you on the passive-income-flavor-of-the-day. It’s frustrating, I know. I don’t know about you, but before I jump into any opportunity or even before I take a trip, I like to do my research. With that being said, there are tons of good opportunities out there. But before you begin spending money, let’s discuss what ways to invest is and, above all, what it isn’t.
Webster’s dictionary defines passive income as “of, in relation to, or being business activity wherein the investor does not have immediate control of income”. I don’t think that tells the complete story. Passive income is money that you get over and over again while not having to do much work (notice I didn’t say “any work”). It is actually different than earned income in that you will be not receiving money for the time (like you would work). But depending on the residual income stream that you choose, you may in fact have immediate control of your earnings. But I’ll get to that later.
Why can you want residual income? Well, like Robert Kiyosaki explains in the book Rich Dad Poor Dad, which is the main distinction between the rich and the middle-class. The rich invest their cash in various residual income streams. When their passive income exceeds their expenses, then they are financially free. “Financially free” simply means that you do not have to have a day job to pay your expenses. And you are “free” to then do whatever you desire!
What Residual Income Isn’t. Before I enter into suggesting what passive income is, let me first tell you need it isn’t. Passive income is not the same as “residual income”. Recurring income is money that you receive regularly after having done work once. The very best example would be TV sitcoms. Some actors get “residuals”. Actors earn money from filming the show. Afterwards, some actors get paid every time the show repeats. Sales agents that sell services, subscriptions, or renewable products (like insurance) sell that item once and, supplying the customer renews, will receive a commission away from each renewal. Royalties through the sale of books and music are also residual.
Many claim that multi-level-marketing or network marketing sales provide you with passive income. Guess what? That’s residual too.
In case you have a small business or are self-employed, even if you are making a lot of money, this is simply not passive income. Should you get a salary from the business, which is Jobs for college students. You will find a way to turn this into passive income, however – so stay tuned.
You know, I have to state that starting your personal website should not be residual income. Regardless if you are selling a product or service (like an eBook, seminar or other information) or even a service, you still have to advertise your internet site. You should do this regardless of whether you happen to be selling your OWN products or hold the rights to sell other’s products. Marketing your internet site is work, simple as that. But it’s not just a job. And when your marketing efforts begin to take off, you can make lots of money with little additional effort. But that is residual within my book, not passive.
What Passive Income IS – Residual income quite a bit of things. The very first thing comes to mind, and also, In my opinion, the most famous example is property. In the event you own investment property and therefore are getting a positive income from a house, commercial property, or apartment, that is residual income. Should you rent rooms in your house, that’s residual income too. You only have to set this up once, and then the income comes in every month. Interest income from savings accounts, CDs, and money-market accounts are passive – the bank pays you for keeping your hard earned money in those accounts. In case you have a website with banner ads or Google AdSense ads, that can be called passive as well.
If you spend money on any company, but don’t manage it, your profits are thought residual income, exactly what Webster was thinking about as he wrote the definition.
How about business? Well, that depends on how you set it up. Rich people create businesses and set up a process the business follows. That way, when the owner continues vacation for any month to Fiji, the employees adhere to the system as well as the owner still will get the profits. Any company will needless to say start off with plenty of work, but if you take time to set up a business to ensure that it gets reproducible results (exactly like a franchise), those profits become passive. And, in accordance with the IRS, any salary you receive from your company is considered “earned” but profits are thought “passive”. It is vital when starting a business to check with the accountant and an attorney to set your business that financially benefits you the best.
What else can be regarded as residual income? How about self-storage facilities, parking garages/lots and dry cleaners! They all require some time to start-up, but once they are set up, you collect money again and again.
Residual vs Residual Income – Residual and passive income are like siblings. They may be both very similar and many people really consider them synonyms. Precisely what does it matter, anyway? They are both excellent methods for getting money up to you month after month after month without trading your time and energy or maybe your freedom. How can it get better than that?
Reality Check – Watch out for anyone who lets you know that there is NO work associated with savings account with American Express. Passive income fails to mean no work! If you are intending to invest in a business, a stock, or even a property property, you should do your research (this is called “due diligence”). Scientific studies are work! You will additionally be required to manage your investments, to check on their xwmpuf making changes as necessary. That’s work too!
The good news is that research and management is simply a part-time endeavor. And most of the time, that work can be done from almost anywhere, including on the beach in Fiji.
Let us remember the FUN factor. I’m sure there are some of yourself looking over this who like, even love their jobs (if you still need one). A number of you may have your very own business – and congrats for you! But many of us have been in jobs just because we have to feed our families and pay for the bills. Looking at residual income streams and investing your time and money can give you many, many returns. Researching for and implementing your passive income plans so you can live your dreams is FUN. Getting money each month, week, or even every day is FUN. And trying out new strategies and managing your hard earned money – once you have some to control – is FUN.