Did you ever wonder how the Hiltons, the Rockefellers, and the Kennedys manage to have so much time on their hands. How do they find time to earn money and still manage to have time to go sailing, go on safari, learn to pilot a plane, and travel almost constantly? The answer—passive income.
Unlike us working stiffs, these families have an income stream that requires very little effort to maintain, giving them vast amounts of leisure time and, yes, MONEY! In fact, that is the very definition of passive income!
Types of Passive Income
There are two basic types of passive income. Most definitions of passive income exclude wages or active business involvement, income from dividends, interest, and capital gains. So what’s left?
Residual income represents earnings from work accomplished in the past that continues to provide a revenue stream, even though the work is finished. Some examples include renewal commissions, royalties, and rental or lease income.
Renewal Commissions – This is a commission received by an insurance agent when his customer renews the insurance policy previously sold by the agent. This is usually an annual event. A successful insurance agent with a substantial customer base can earn thousands of dollars as these customers renew policies sold years earlier.
Royalties – These earnings are most often associated with authors like Stephen King and Tom Clancy, prolific authors of bestselling books, but royalties can also come from other sources. Musicians, photographers, songwriters, actors, and inventors are just a few examples of people with an income stream received in the form of royalties for past work. You’ve heard it said that Elvis has earned more since his death than he earned in life … royalties!
Rental/Lease Income – Owners of rental homes, apartment buildings, even mobile home parks are recipients of passive income. This could also fall under the category of leveraged income, as would be the case with a property owner who employs property managers to oversee the properties and attend to the tenants’ needs.
Leveraged income is income derived from the work of others. Some examples of this type of income include other commissions and franchise fees.
Other Commissions – This includes a variety of different commissions such as multi-level marketers who receive income from the sales generated by downstream recruits, world travelers who receive income from videos of past trips, and writers who create eBooks to be sold on the web by affiliates.
Franchise Fees – Many successful restaurateurs franchise their restaurants to leverage income.
These are only a few examples of passive income. They are for illustrative purposes and these few examples do not include every form residual and leveraged income in existence.
Right about now you may be thinking, “Okay, so what’s the big deal! What can this do for me?”
Passive income can give you the freedom to enjoy life in the way the Hiltons, Rockefellers, and Kennedys enjoy their lives. Maybe on lesser scale, but if you continue the 9 to 5 routine, you have no shot. Even when you retire, you may not be able to enjoy that lifestyle! You may not be the most astute investor on the planet. Not all of us can duplicate the success of a Warren Buffett or a George Soros. However, at the very least, we can explore alternatives, like those described here, and create our own unique path to wealth and freedom.
Each of us has a talent that we can exploit to create a passive income stream. Maybe you can write a book, perhaps you have a successful restaurant or business that lends itself to franchising, maybe you can compose music, or maybe you have a product that lends itself to multi-level marketing.
During WWII, General George S. Patton said, “I don’t like paying for the same real estate twice.” Similarly, why not do a job once and let it continue to provide you income? Creating an income stream that does not demand your involvement allows you the opportunity to work less and earn more, even through your retirement years. Think about it. Think how it can change your life. Then, as the folks at Nike say, “Just do it!”
Call to Action
Have you ever tried to generate passive income? What did you do and how did it go?