What Actually Is Passive Income?
When Securix.io pays out a 45% gross revenue share to token holders of its SRXIO token by sharing 45% of its gross revenue from every mined Bitcoin this is passive income.
Referring to Passive Income Warren Buffet the Sage of Omaha says “If you don’t find a way to make money while you sleep, you will work until you die.”
“To obtain financial freedom, one must be either a business owner, an investor or both, generating passive income, particularly on a monthly basis," states Robert Kiyosaki #Rich Dad
“Residual income is passive income that comes in every month whether you show up or not. It’s when you no longer get paid on your personal efforts alone, but you get paid on the efforts of hundreds or even thousands of others and on the efforts of your money! It’s one of the keys to financial freedom and time freedom." claims Steve Fisher
"You become financially free when your passive income exceeds your expenses." Boasts T. Harv Eker
Types of Income;
What is Passive Income?
There is a lot of chatter in the personal finance world about passive income, why you need it and how great it is. But what is it and why is it such a large topic of conversation?
Passive income is money that you earn without doing much to make it.
If you’re worried about being able to save enough of your earnings to meet your retirement goals, building wealth through passive income is a strategy that might appeal to you.
Passive income includes regular earnings from a source other than an employer or contractor. In the United States the IRS says passive income can come from two sources: rental property or a business in which one does not actively participate, such as being paid book royalties or stock dividends.
It’s easy to think as passive income as money earned while sitting on a beach sipping margaritas, or pina coladas, but there is lots of work involved.
“Many people think that passive income is about getting something for nothing,” he says. “It has a ‘get-rich-quick’ appeal … but in the end, it still involves work. You just give the work upfront.”
What is Active Income?
Meanwhile, Active income is money earned when you perform a service. This is money you make from a job and includes salary, tips, commission and any other extra cash you make from a side hustle.
What is Residual Income?
Residual income is when you continue to get paid after the work is done. This includes royalties from books, movies, or songs and also revenue that comes from real estate investments or business investments where you don’t have to be present to earn it.
Why you Want Passive Income?
What if there was a way you could sit back and earn money by simply doing nothing? The reality is it it's something numerous people actually do... every single day. It's a practice known as passive income, and it's what allows people to accumulate wealth without ever having to lift a finger.
Basically, Passive income works like this: You make an initial investment, which generally requires you to not only put up some money but do some research or groundwork. However, from this point on, you sit back and enjoy an income stream without having to make any more of an effort. Some common investments known to generate passive income are stocks, bonds, rental properties, or investments in private businesses or private equity. Each of these ventures will allow you to keep generating cash flow over time.
Stocks are one form of passive income.
Stocks are one of the most noted means of passive income. Once you've performed your homework and researched various companies and then decide how many shares of stock to purchase, you don't have to do anything else except sit back and watch the price grow in value as the stock spins off a dividend stream. Imagine you decide to invest in a publicly traded company. A company that trades on the NYSE, The London Exchange or possibly Vancouver. It's not like you'll ever be asked to show up at that company's headquarters and assist its research team in doing anything. Rather, you'll get to go about your business and wait to collect your passive income in the form of quarterly dividends.
If the stocks you buy appreciate in value and you sell them at a profit down the line, you'll generate additional income that way. The only difference is that whereas receiving dividends happens automatically, deciding whether to sell a stock will require a bit of thought, research, and action on your part. Furthermore, you will need to do some initial research before throwing money into stocks. Specifically, you'll want to find companies with a strong performance history and a solid business model that offers an opportunity for growth. Similarly, you never want to set up a portfolio and then ignore it indefinitely. The days of buy and hold are long gone. You can be on the right track, but if you sit there too long you’re going to get run over. You should always keep track of your investments to make sure they're performing up to par. But you're still looking at a small amount of legwork relative to what your investments might produce.
Bonds are another easy way to gain a passive income stream. When you buy bonds or fixed income, what you're essentially doing is lending an issuer a sum of money in exchange for semiannual interest payments. Once your bonds mature, the issuer is required to repay your principal investment, and at that point, you'll have ideally collected a fair amount of interest along the way. Although bond interest, like dividend income, is technically not guaranteed (you never know when a company might default), if you buy bonds issued by highly rated companies, the likelihood of experiencing a missed payment is pretty low -- which means you can sit back and let that interest keep coming in. Similar to stocks, there's always the option to sell your bonds at a price that's higher than what you paid for them, thus generating income that way, through the bond increasing in value and appreciating.
If you willing desire to get involved in real estate, it could end up paying off in a huge way. That's because buying a rental property, or commercial property, could set the stage for years of steady monthly income without your having to do anything other than cash your rental checks.
You don’t have to manage that rental property either. Simply, hire a a property manager or management company and have that person or group handle all maintenance, repairs, lease agreements, and tenant placement and screening. .
Granted, investing in rental properties does require you to get a mortgage, which can be a process. It also requires you to put up a potentially sizable amount of capital, not to mention lots of up-front market research. But once that's done, there's no need for you to take an active role.
Investing in a limited partnership is another good way to generate passive income. In this sort of arrangement, you're essentially funding a private venture with the potential to earn money, but your liability is limited to the sum of money you choose to invest. And as long as you agree that you're not going to play an active role in that venture, any associated income will be passive in nature.
Of course, these are only some of the passive income streams you might pursue. There's a world of opportunity out there, and if you're willing to be creative, you stand to collect even more money for doing very little.
For example, if you're a web developer, you might create an app that you can then sell to users so that each time someone signs up, you're getting cash. Similarly, you might compose a musical piece that, if eventually used in commercials, brings in some decent royalties. Do all of these examples count as true passive income? Not by every definition. But let's liken them to owning a rental property. You might sink weeks into researching which right area to buy in. You might then spend several more weeks looking at properties before making your purchase. But once that major effort is complete, you get to sit back and reap the rewards for what could be five, 10, or 20 years. The same holds true here.
Remember, passive income does require at least some effort; it just doesn't require a substantial ongoing effort. The best part? When it comes to passive income, the possibilities are truly endless. And in many cases, the more effort you're willing to put in up front, the greater your payoff will be down the road.