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Most of us have a job where hard work is expected and necessary. We offer our knowledge and/or labor to the company we work for in order to get recognition, satisfaction and compensation in return. Although this is the way most people make money, the minute we stop working, the income stops.
On the other hand, a popular idea that floats around the internet is passive income. The idea of it is that money is being earned with or without our involvement. Once it’s set up, the recurring income will come continuously.
Anyone can quickly see why this idea is popular. Here are three extremely good advantages:
Provides Freedom
If your passive income is higher than your living expenses, then you free yourself from the daily grind of working for someone at least 8 hours a day. You can enjoy your life and do what you want, while earning enough money to sustain your lifestyle.
Offers Diversification
To borrow a popular term from investing, passive income provides diversification. An extra income stream provides an extra layer of safety for you and your family. Nothing is a guarantee in life and unexpected events happen. You may lose your job or the money making opportunity might turn out to be a total scam. The more avenues you can earn money from, the more financially secure you are.
Continuous
Passive income doesn’t stop coming when you stop working. Even if we love our careers and want to work 7 days a week, there comes a time when we need to retire. At that point, our income from our jobs will end. It doesn’t matter how valuable you were to the company. If you stop working, they will stop paying you.
Passive income on the other hand works even without you thinking about it. Even if you retire, the money will keep coming to you.
Creativity is the most effective way to generate passive income. All it takes is some thinking and you could be on your way. Here are a few popular passive income streams that we are all familiar with to help you get started.
Dividends
Many companies distribute money (otherwise known as dividends) regularly to share holders to attract investors. In order to take advantage, all you need to do is buy the individual stocks of the company or own the mutual fund or index fund that holds the company stock.
Interests
Perhaps the most common of them all, interests earned on any financial accounts are really another form of passive income. You literally put your money in your account and watch your wealth accumulate! With the interest rate at roughly 3% though, you might need to have a large sum in your account for the interest to be meaningful.
Making a Timeless Product and Selling It
Many people become rich because they created a unique product that they own the rights to. An author that gets royalties from a book that was written; a creator collecting licensing fees for an invention; and a singer making money from every CD sold are all good examples of this. Once it’s created, money flows to you as people have a need for the product.
Network Marketing
There are many programs out there that allow you to make money off the efforts of people you refer. This type of scheme, sometimes also referred to as a pyramid scheme, got a bad name many years ago. At one time, many fraudulent companies that had no real business model used this scheme as a marketing tool. They would advertise the benefits of making money, while asking you to pay an initial fee to sign up. Once they had a bunch of people falling for the trick, they would close the business. Many people either lost money or heard of these stories, so they are skeptical whenever they see a company rewarding people using this scheme. However, if the company you build your network with has a legitimate product, it can be a powerful way to make passive income.
Blogging
Many people think blogging is passive income but it really isn’t. Those that regularly read blogs know that many bloggers spend hours every day thinking and writing content, as well as managing the blog layout amongst other things. For more details, read Busy Blogging’s article about 10 things to consider before jumping on the money making online bandwagon which explains why blogging might not be as easy as you think.
One incorrect perception about passive income is that it is effortless. Looking at the examples of passive income above can explain this best. For dividends and interest to be significant, the principal (money that’s put in the financial account) must be pretty big. In order to generate this big base, you have to work for it! With any product, a lot of effort needs to be spent creating it. With network marketing, hard work needs to be put in to build the network of referrals. So if you think passive income is effortless right from beginning, you are misinformed.
The first step of generating passive income starts from having the right mindset. You need to be:
- Willing to think of ways to make money that may or may not be published by others
- Understand that although the ultimate goal is to work less and still make enough money to sustain your lifestyle, it is hard work at the beginning
- Be on the lookout for ways to add an additional income stream
- Understand that many of the ideas aren’t going to work
- Have the confidence that you can do this because many people are quite successful at it and end up living a dream.
- And most importantly, have fun doing it!
If you have what it takes, start now! Spread the word about passive income and continue looking for ways to increase it. One day, you might just be able to tell your boss that you are leaving without financial worries!
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Great post David!
Anyone wondering how the rich got rich, should understand passive income - it’s the road to riches, whether it’s royalties from CD or book sales, an income from a business or dividends and gains from stocks. Unfortunately, as you point out, applying the principals and creating a passive income stream is not as easy as understanding the theory. But then, if it was that easy, we’d all independently wealthy!
MN,
Great post on P I. I like your approach that passive income generation is a long process and should not be viewed as a get-rich-quick type scheme.
As for blogging, if you create timeless content which could be alway found easily through google, you could theoretically make passive income from blogging. But blogging is a very active source of revenues for most.
I think that dividends and interest are the two most “passive” income sources out there. But that’s just me..
That was an excellent post.
You can’t beat passive income. I have numerous websites, some of which I haven’t touched for months, yet they still bring in between $200 and $500 a month.
Another great way to create passive income if you run websites is to promote affiliate programs that pay recurring commissions such as autoresponders and web hosts. That way you can get paid over and over again from each person you refer.
If you like to write, and have an eye for spotting content that’s timeless you can also earn a passive income writing:
http://simpledebtfreefinance.com/5-ways-to-earn-free-money-writing-online/
like Blogging, it takes some effort in the beginning but you don’t need to have a blog to do it. You can use sites like Hubpages or AssociatedContent if you don’t have a blog…
In today’s world more streams of passive income the better…I was one who had 2 streams - 1 mortgages and 2 real estate investments….Now you can see why we need multiple streams so if 1 or 2 start to dry up you have another one continuing.
Good article!
Darn you and that pic, now I want to go fishing!
By the way, Network Marketing plans and pyramid schemes are two very different things. You’re right on about the good companies, though.
Nice post.
I think this is my only motivation why I blog. To have a nice source of passive income. Eventually, I’ll lave my 9-6 job and spend more time with family. I know it takes alot of effort and time first, but once its done, it will be all worth it.
@James: I hope to follow your steps..wow untouched websites earning $200-$500/month..not bad eh?
Sam
Fix My Personal Finance
http://fixmypersonalfinance.com
And remember none of them are for sure things… interest can change, people can quit buying or hitting sites, etc… however, one does what one can. Best to not have all your eggs in one basket.
Interest, dividends, and carrying land sales contracts work for me, and hopefully will carry me into retirement - I-m ’semi-retired’ now - at least that’s what I call working parttime so I have company paid health insurance
And yes, it was hard work getting them all to a point where they produce the money works for me.
Thanks for the info.
Great post here. I just quit my full time job to blog professionally last month. I have advertisers who paid a set rate of $99-$399/month to advertise on my blog and this sometimes feels like passive income because I can take a week off if a seed some posts to publish during a vacation…BUT as mentioned above it is not real passive income. If I stopped posting I would get dropped from blogrolls, loose some search engine rankings and eventually all of the advertisers…
Great post, feel free to email me if you are a blogger looking to make a living out of it. Happy to share my story.
- Richard
hi, andar here, i just read your post. i like very much. agree to you, sir.
MoneyNing,
I was wondering what dividend stocks do you own in your portfolio?
Best Regards,
Dividend Growth Investor
http://dividendgrowth.blogspot.com/
Dividend Growth Investor: My dividend paying stocks are:
Citigroup (C)
US Bancorp (USB)
Altria (MO)
Phillip Morris (PM)
Intel (INTC)
NYSE (NYX)
Terroso (TSO)
The others that I own don’t pay a dividend I believe.
wow…
your post exactly matches my sentiment when i started out in my blog in earning a passive income too. Except that your reflection is so much more detailed.
Greato! Hope to hear more good stuff from you.
Paul
http://www.passivelifeincome.com