Image via Wikipedia
Passive income is a popular subject in personal finance, and it is a goal of ours as well. If you’re unfamiliar with passive income, it is an income stream that you don’t have to actively earn. There are many forms of passive income such as:
- Dividends from stocks.
- Interest from CDs, bonds and other accounts.
- Residuals in the entertainment industry.
- Royalties from any intellectual properties.
- and any other income that you don’t have to actively earn income from.
Passive income is a goal of ours because it provides money from work that we’ve already done, and it allows us to pursue other avenues and not worry about them being extremely successful right away.
Think of all of the different avenues you could pursue if you knew that all of your obligations were covered!
Passive Income: What Would You Do?
What would if you knew you had your bills paid each month? Would you take the leap and finally open that business that you’ve always dreamed of? Would you stop working that job you hate, and finally do something you love? Would you volunteer in your community and try to make the world a better place? Or, would you just spend more time with the ones you love, and enjoy what really matters?
I know that most people would pick at least one, if not all, thing from that list. The truth is, few people really feel fulfilled at work, and few people are really doing what they love. Passive income can make that happen, but how realistic is it?
Passive Income: Puny Pittance?
How much are your monthly obligations? $500, $1,000, or $3,000? That seems like an awful lot of passive income to generate, and you’re correct. To earn about $500 a month, you would need about $150,000 in an account at 4% interest. I don’t know about you, but I certainly don’t have $150,000 lying around!
Basic arithmetic tells me that I need a ballpark of $15,000 in the bank at 4% just to earn $50.00 a month! I can tell you right now, my bank account isn’t pulling 4%, but we’re thinking myopically. When was the last time anyone considered their bank to be their prime income generator? I’m sure there are some people out there, but they’d be few and far between.
Principle Might Be Your Problem!
If you think in terms of principle and interest, then passive income seems like an impossible mountain to climb. You will either not reach your goal, or it will take a very long time. What I’m trying to say is to not build your entire passive income portfolio on a bank account. You’ll never get to where you want to be.
Just like Warren Buffett doesn’t partner up with people who can only bring capital to the table, you shouldn’t let capital be your only asset. It doesn’t take talent to put money into a bank account, but it does take talent to make something that warrants royalties. To enhance the efficiency of your passive income portfolio, you should take advantage of things that generate income with minimal need for principle.
What if you wrote 200 articles online? It is quite easy to earn $50 – $100 a month from 200 well written articles online, but that sounds hard, doesn’t it? Passive income isn’t easy, but what if I told you I would pay you between $15,000 and $30,000 to write those same 200 articles? Would your demeanor change? By writing those articles and earning $50 – $100 a month, you’ve essentially stuffed between $15,000 and $30,000 into a bank at 4%, you just don’t have the luxury of seeing that big number in your bank account.
Can Passive Income Be Massive Income?
The answer is an emphatic YES! But if you depend on your capital to do it, and you don’t want to bring any valuable talent to the table, then you’ll be spinning your wheels for a long time. Get outside of your comfort zone and experiment with different passive income opportunities that are out there. It’s easy to stuff money into a bank accounts, and that’s why you get the return that you do.
About WealthArtisan
To me, passive income is income that I earn while I am asleep! Passive means I am not working directly for it.
@krantcents
Hi Krant,
I absolutely agree. I might be misunderstanding what you mean, but what I describe is no different than going to work to earn money to buy a dividend paying stock. Once you’ve got the ball rolling, and the money starts coming in, you can sleep all you want
. I hope you had a great weekend!
Thanks,
Timothy
Solid advice. I do think that people misunderstand a few things about passive income. First, like you state, I think they misunderstand the initial work involved to get the ball rolling. Like trying to push a one ton boulder, it takes quite a bit to get the momentum going. We hear about lots of successful business leaders but don’t realize the 20 hour days and sleeping on friend’s couches that were involved in the early days. There is a lot of sacrifice.
Second, people forget about some of the sources of income like royalties or businesses. Even though you may think Rebecca Black’s “Friday” is a lousy song and video, she is making quite a bit of money from same. With passive income, it pays to be creative.
This was an interesting read! I think about this a lot… not so much to quit my day job by any means, but rather to build up my income even further. I invest primarily in dividend stocks, which is great, but I would like another form of passive income, give me some ideas lol!
@optionsdude
Hi There,
That’s one thing that I was thinking about that song. People may hate it, and rate it terribly, but the viral level it hit had to have created huge financial benefit! Not only that, but with the number of links that it has generated, it will get residual traffic for years to come. Thanks for stopping in!
Thanks,
Timothy
@Justin @ MoneyIsTheRoot
Hi MITR,
A lot of the ideas sound far fetched, but anything regarding intellectual property can be a residuals gold mine. Inventions, song & video rights, articles online, and things of that sort. Being a capital contributing partner in a business (this is similar to dividend investing, but returns would probably be better), or franchising a business is another method of passive income. Some of these ideas require lots of capital and time to get rolling, but they are all passive income methods that should net you better than 2-3% ROI. Thanks for dropping by!
Thanks,
Timothy
I like the title of this post! Just like your investments, it is vital to diversify your sources of income as well. You never know what might turn out to be a jackpot!
Hi MoneyCone,
Glad you like it! I love rhymes and alliteration! You’re absolutely correct though. I have a couple of posts about income diversification. It’s often overlooked, which is funny being that investment diversification is such an important fundamental. That seems like an odd oversight/inconsistency, don’t you think? Thanks for stopping in!
Thanks,
Timothy
This is a subject I’ve been reading a lot of lately. I just spent some time over at Pat Flynn’s site and I have to say that it is very possible to generate lots of passive income. Nice post!
Interesting concepts… do you really think it is possibly to earn $50-$100 a month with 200 articles?
Hi there ST,
Yes, it is absolutely possible. It does come down to a couple factors. The articles have to target money making industries. As nice as frugal blogging is, your target audience may not be the easiest to monetize. Now, if you write excellent articles for something like Jewelry, or other high margin items, then you can easily make that money. The biggest problem will be the competition. Where there is money, there is competition, and ranking on search engines with a Jewelry article will be the hardest part.
Thanks,
Timothy
I argue there is no such thing as passive income. There is such a thing as residual income. Every form of income needs time and/or money to invest. Once it gets going, it can’t last forever. Maintenance is eventually needed.