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Passive Income

Passive income should be everyone’s goal. It is how you can retire and enjoy yourself. What is passive income? It is income generated by doing little or no work.

Most people who work for a living are doing what is known as trading time for dollars. You work 10 hours and get paid 10 times whatever your hourly wage rate is. So if you make $10/hour, that would be $100 and if you make $50/hour that would be $500.

But what happens when you take vacation or time off? In some cases, companies have agreed to pay their employees for vacation time. But if you provide a service, such as a lawyer or a doctor, you don’t get paid for the time you don’t work (unless you are working for a company on a salary basis).

Granted, because of education, and providing a needed service, some people earn a very high $/hour amount, but they are still trading time for dollars.

Many small business people start the business because they have gotten laid off and decide to start a business, or they think they are going to be the next MacDonald’s or Starbucks. Although others just want to make a living. But many people don’t understand what is involved in running a small business and trade the rat race for something worse. As owners of a small business, they are responsible all the time. They can’t turn it off at the end of the work day. And they end up working harder and longer than ever.

But, a business doesn’t have to be a slog. It can be a form of passive income. What you need to do is set up systems, so everyone knows what needs to be done and how it should be done. You train good managers. Ultimately, the business can run effectively without you being there. At that point you can retire, or start a new business and do it again.

So, how do you get money working for you? You do it by various forms of investment that will generate a passive income. Examples?

Many people do it by investing in stocks and bonds. These pay dividends. If you build up a large enough portfolio, it will generate enough money to replace your income. In addition, frequently, if you have invested wisely, the value of the shares will increase in value over time which will add to your net worth. This is also passive.

Other people do it by investing in real estate. Granted, it is work to manage a property, but you aren’t getting paid by the hour. You still receive rents whether you are on vacation or not. And if you get a large enough portfolio of real estate, you can hire a manager, so you can truly be hands off. You still have to manage the manager but you don’t have to deal with the day to day headaches.

Then there are royalties. If you invent something and patent it, you can license it to different companies and sit back and collect royalties. It used to be that to open a can, you used a can opener to punch a hole in the end. Ermal Fraze invented the pull tab and made a fortune. Or Robert Abplanalp who invented the modern aerosol valve and also made a fortune.

Or, think of JK Rowling and the royalties she is making off the Harry Potter books and movies.

Then there are musicians and actors who receive royalties every time a movie is shown or bought or every time a piece of music is played. They don’t have to act or sing or play each time to get paid. They can get paid for what they have done while they are sleeping.

So whatever you do, try to figure out a way to turn it into a royalty stream or some way to create a passive income.