Most of us go to work everyday, usually for someone else and make money. This is active income. Money that you are paid for hourly or as a salary. Passive income is money that requires little to no work and continues to pay with minimal effort on your part. Common examples of passive income are: Rent paid to you, Stock dividend payments, Royalties for written or video work, etc. For obvious reasons, passive income is the most advantageous kind of income one can have. Who wouldn’t want to have checks coming to them for no work, or work that has already been performed? Nobody I know.
Hundreds of thousands of people in the U.S. make their living from passive income. In most cases, their income results from years of hard work that they have simply automated for themselves. Although incomes may fluctuate from one extreme to another, you too can create passive income streams with relative ease.
This article is not intended to make you a millionaire or lead you to believe that you will get rich overnight, it is simply to point out income that is attainable outside your current professional position.
The most common form of passive income, interest is money collected on any type of account in which the institution pays you to house it. Selected checking accounts, most savings accounts and CD’s pay interest to hundreds of millions of customers.
Stock purchases can be a lucrative way to create a passive income. Many well-positioned stocks pay dividends to investors. These dividends (either a set amount or a percentage of the total stock price per share) can be reinvested automatically or taken as a check. Whether taken as a check or reinvested, dividend payments are a wonderful source of passive income and if your investments are lucrative, they can make a significant sum for you over time.
For many, real estate means a way of life. Some will position themselves so that rent money from others will actually cover all of their own expenses, giving them the financial freedom to do as they please. Keep in mind that being a landlord does not happen overnight. It will usually take years or even decades of time and resources to get a hassle free system in place. Renting may not be for everyone. There can be a great deal of issues that arise when operating a real estate business, but for many it can mean the gateway to prosperity and passive income for a lifetime of dodging the 9-5.
These payments usually come from customer renewals. Often a membership that is renewed monthly or yearly. Insurance agents receive recurring payments every time a policy they have originated is renewed. Recurring payments are more commonly called residual income. Although residual income is usually generated through more traditional work methods, it is still considered “passive” because no additional work is required to attain this income.
Royalties are payments made to you for intellectual property you have created or appeared in. This could be TV, Movies, Books, Patents, Trademarks, Copyrights, and other classifications of intellectual property. Since there are so many different types of royalties and can be on nearly anything, I will not go into great detail about these payments besides saying that royalties for some can provide enough income to live on, but for many it will be no more than a check for a few dollars every month. Either way, any income is good income.
There are countless places to introduce advertising to provide income. You, like me, may operate a website and place advertisements on the site. You may own property in which billboards or other advertisements are placed. Many people nowadays can make a decent living operating a website with advertising strategically placed on it. This method, despite the common misconception, requires a large amount of time and effort. Furthermore, your likelihood of success is very minimal.
Passive income can also come from your business. Again, this method requires an immense amount of dedication and hard work. When your business is automatic enough that it no longer requires your time, it qualifies as passive income. In many cases, allowing your business to provide you passive income is not an option. Most people have far too much invested in their business to let it go and collect from it without participation.
Easily the second most common form of passive income, pensions are funds set up by employers, state/fed, or disability. These funds are usually allocated to help provide with living expenses after retirement. Employee pensions are set up by companies to assist employees after long-term service. They are becoming less common in recent decades due to corporate bankruptcies and other financial obstacles. State and Federal pensions are funds set up by government entities. Social security is the most common government pension program. Disability pensions are organized by both Government entities and Employers alike and help to provide for those unable to do so due to physical or mental disability.
Of course, all of these types of income require effort. Some more than others, but putting a passive income system in place, whether large or small, is a great way to build wealth.
If you do receive passive income, the Government wants it’s piece of the pie. Passive income is taxed just like your regular income. Always keep this in mind if you do have a passive income stream of any kind. The last thing you want is to have used all of your income only to find out that you have to pay up come tax time.