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 plenty of excellent opportunities out there. But before you begin spending money, let’s discuss what second job is and, above all, what it isn’t.
Webster’s dictionary defines residual income as “of, in relation to, or being business activity in which the investor lacks immediate control of income”. I don’t believe that tells the whole story. Passive income is money that you receive over and over again without having to do much work (notice I didn’t say “any work”). It really is different than earned income in that you are not receiving money for your time (like you would work). But depending on the passive income stream which you choose, you may in fact have immediate control of your income. But I’ll reach that later.
Why would you want passive income? Well, like Robert Kiyosaki explains in his book Rich Dad Poor Dad, that is the main distinction between the rich and also the middle class. The rich invest their cash in a variety of passive income streams. When their residual income exceeds their expenses, then they are financially free. “Financially free” means that you do not have to get a day job to cover your expenses. And you also are “free” to then do whatever you desire!
What Passive Income Isn’t. Before I go into letting you know what passive income is, let me first let you know want to buy isn’t. Passive income is not really exactly the same thing as “residual income”. Residual income is money that you receive frequently after having done work once. The most effective example would be TV sitcoms. Some actors get “residuals”. Actors get paid for filming the show. Afterwards, some actors receive money each and every time the show repeats. Sales agents that sell services, subscriptions, or renewable products (like insurance) sell that item once and, offering the customer renews, will get a commission off of each renewal. Royalties from your sale of books and music can also be residual.
Many claim that multi-level-marketing or multilevel marketing sales provide you with residual income. Guess what? That’s residual too.
For those who have your small business or are self-employed, even if you are making lots of money, this is NOT residual income. In the event you receive a salary from the business, that is certainly freelance writing jobs. There exists a method to turn this into passive income, however – so stay tuned.
You know, We have to express that starting your very own website should not be passive income. Whether you are selling a product (including an eBook, seminar or other information) or perhaps a service, you still need to promote your website. You will need to do this regardless of whether you might be selling your OWN products or hold the rights to market other’s products. Marketing your internet site is work, simple as that. But it’s not a job. And when your marketing efforts start taking off, you can make lots of money with little additional effort. But which is residual within my book, not passive.
What Passive Income IS – Passive income quite a bit of things. The very first thing concerns mind, and in addition, I think, the most common example is real estate property. Should you own investment property and are obtaining a positive income coming from a house, commercial property, or apartment, which is passive income. Should you rent rooms in your house, that’s passive income too. You only have to set this up once, and so the income is available in every month. Interest income from savings accounts, CDs, and funds-market accounts are passive – the bank pays you to keep your money in those accounts. If you have a web site with banner ads or Google AdSense ads, that can be called passive as well.
In the event you spend money on any organization, but don’t manage it, your profits are viewed residual income, exactly what Webster was considering when he wrote the definition.
Have you thought about business? Well, that depends on how you set it. Rich people create businesses and set up a process the business follows. This way, in the event the owner goes on vacation to get a month to Fiji, the employees follow the system and also the owner still receives the profits. Any business will of course start off with a lot of work, but if you spend some time to set up a business so that it gets reproducible results (exactly like a franchise), those profits become passive. And, in accordance with the IRS, any salary you obtain from your business is considered “earned” but profits are considered “passive”. It is important when starting an organization to check having an accountant as well as an attorney to set up your business that financially benefits the finest.
What else can be regarded as residual income? How about self-storage facilities, parking garages/lots and dry cleaners! All of them require serious amounts of start-up, but once they are set up, you collect money over and over again.
Residual vs Passive Income – Residual and passive income are like siblings. These are both very similar and a lot people really consider them synonyms. Precisely what does it matter, anyway? They are both excellent techniques for getting money in your hands month after month after month without trading your time and effort or your freedom. How can it improve than that?
Reality Check – Watch out for anyone that lets you know that there is not any work involved in savings account with American Express. Residual income does not mean no work! If you are planning to spend in a business, a stock, or perhaps a real estate property property, you will need to do your homework (this is called “due diligence”). Research is work! Additionally, you will be asked to manage your investments, to check on their xwmpuf to make changes as necessary. That’s work too!
The good news is that research and management is just a part time endeavor. And usually, that work can be completed from almost anywhere, including on the beach in Fiji.
Let us remember the FUN factor. I’m sure there are some of you reading this article who like, even love their jobs (if you still need one). A few of you have your own business – and congrats for you! But the majority of us will be in jobs just because we must feed our families and spend the money for bills. Looking into 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 every month, week, or even every day is FUN. And seeking out new strategies and managing your cash – once you have some to handle – is FUN.