Most of us trade an hour of our time for a certain amount of money. Passive Income breaks this relationship. Income can come in even when we’re not working and an hour of work might yield a dollar or a thousand dollars.
Passive Income “decouples” the money from the effort. It is no longer a one to one relationship. The results can be extremely powerful, but it takes some courage. You work hard to create something now with the hope that it will give back much more later.
A wage from a job is guaranteed, there is no risk (other than losing that job and having to scramble to find another before your savings run out). With most forms of Passive Income, especially those with the highest potential pay-off, there is no guarantee. You’re on your own and you will live or die (financially) on your own talent and perseverance. It’s the classic gutsy gamble of the entrepreneur.
Passive income isn’t new. Some people have been able to make passive income for centuries.
Examples of Traditional Passive Income:
Royalties from a book or music
Dividends from stock
Interest from savings
Profits from a business that runs itself
Rent from tenants
License fees from a patent or other design
The internet has created vast new opportunities for those willing to put in the time and the work. It no longer takes mountains of money to make money. A new profitable business can be “bootstrapped” from almost nothing.
Examples of Online Passive Income:
Sales from a virtual store whose products are drop-shipped
Advertising revenue from a content site like a blog
Commissions from affiliate marketing
Membership fees from an exclusive content site or community
Sales from an electronic product you created like an app or ebook
Recurring monthly fees from an electronic service or program
What Passive Income is Not
Passive Income isn’t easy and it isn’t free. You have to work hard for it. It doesn’t have to cost a lot in monetary investment, but the time investment can be considerable.
Just because it’s on the internet doesn’t mean it’s passive.
Examples of Online Income that Isn’t Passive:
Selling collectibles on eBay
Making crafts and selling them on Etsy
All of the above are great ways to work for yourself and to escape the 9 to 5. They’re just not passive. The income is coupled directly to the work put in.
So What’s the Big Deal About Passive Income?
Because you’ve decoupled your income from your effort, it’s possible (but by no means guaranteed!) to make a lot of income from a brief amount of effort up front, and that income can keep coming in for years after you’ve done the work. A software developer can sell 10,000 program licenses for the same effort as 10. An author can still be getting a regular cheque in the mail a decade after the book was published.
There are very few if any Passive Income ideas that are truly hands-off and that will produce forever. There is usually an intense period of set-up early on and then some amount of low-level constant maintenance required. This maintenance, however, is often on the order of a few hours per week. Now you can take all that spare time and either create a new project to add to your portfolio or go backpacking through Thailand. The choice is yours.
What other examples of Passive Income (online or not) did I miss? Do you have experience with Passive Income? What worked for you? What didn’t? Leave a comment below.
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