Passive Income - Fact or Fiction?

Dream About Quitting Work?

Passive income seems to have become the illusive Holy Grail of wage slaves everywhere. That's not really a big surprise. Well over half of workers are dissatisfied with some aspect of their work place. The vast majority has to do with people problems. No wonder the urge to stay home seems overwhelming. If only the paychecks would keep coming, though. There is no shortage of ideas how to make that happen. Go ahead, make a search for "make money at home" or some other term like that. You'll see.

What is Passive Income?

Passive income is income received on a regular basis without performing an effort to receive it.

IRS Definition

1. Active, also known as wages, salary or small business. Commissions from e.g. insurance policy renewals is active income for IRS purposes.
2. Passive, income from rent or from a business partnership in which you do not materially participate.
3. Portfolio, such as dividend and appreciation of stocks and bonds. Royalties from intellectual property are also included in this category.

Four Approaches

Portfolio

While  managing a portfolio of stocks and bonds is not completely work free, it comes pretty close. You do not have to manage it on  a daily basis although you could.  In fact, frequent trading may actually harm your performance.  The hard part is accumulating a portfolio large enough to make a meaningful return in the first place.

You can minimize the work you have to do by turning the whole thing over to a professional manager.

Royalties

Royalties are the income you get when books, songs or plays you have written  or movies you have directed or acted in are sold or performed in public.  Obviously, getting to the point where you have a portfolio of works people will actually pay money for is the hard part in this approach.

You may not be able to hire someone to do your acting for you, but you can purchase the rights from actors or writers who would rather have a little less cash now than wait till their work actually gets sold.  This seems like a rather risky proposition, however.

Affiliate Marketing

Product sellers provide code you can insert into your own blog or web pages.  When a visitor clicks one of those links, you will earn a small percentage of the sales resulting from your work. 

This may seem like an easy way to earn passive income.  It is not difficult to make a blog or website and insert the code.  The difficulty lies in getting people to click on them and actually make purchases. However, once you accomplish that, those sales will continue to happen maybe long after you have forgotten about the page.  

Many affiliate marketing tasks can be turned over to other people.  The difficulty then lies in recruiting and training them.

Rent

Buying rental property has long been a popular way to generate passive income. The unique thing about real estate is that, thanks to mortgages, you can control large assets with very little of your own money invested.  However it is not work free.  Much effort goes into screening tenants and making repairs and other maintenance.  However, if you have a knack for dealing with people, renting property may be downright enjoyable.

If you prefer not to be personally involved, you can hire a property manager - for a fee, of course.

Small Business

Owning a small business has long been considered one of the most lucrative ways to accumulate real wealth.  The catch is that you need to learn to delegate, otherwise it will seem just like another job with long hours and little reward.