Passive Income.... What is it, and how do you get it?

Sometimes people use the term "financially free".... usually it is used when people want to "hype" something. I know the term from a long time ago when I signed up to try Multi-Level Marketing....

But what is it really? To me, it means you have enough money coming in so you don't HAVE to work... It frees you to work at what you love....

I don't think it is good to be a lazy bum in society.... but it is good to have security, and to be able to work at what you love....

To me, being "financially free" means having enough "passive income"....

What is "passive income"? It's money that comes in WITHOUT you having to work at it....

Is it possible?

Yes it is, with investment....

Investment doesn't have to only be about stocks or property.

Writing an ebook is also a form of investment -- you can get money coming in (in the form of royalty checks) without you having to work at it at all -- after you have "invested" the time to write your ebook.

Another example is investing the time and money to build your own business. If it is the sort of business you could sell later, or employ people to run it for you, then it is also a form of investment. (This is where "The E-Myth Revisited" can help with guidance -- others have mentioned that book earlier....)

Are you working on your passive income? How much money do you have coming in every week, or every month, WITHOUT you having to work on it?

I have some passive income coming in from my stock market investments (though I mostly invest for capital gains rather than dividends.... and I'm doing pretty well....).

Some people I know invest in property, and have money coming in every month from rental money.... another form of passive income.

But investing in stocks or property takes some money. What if you don't have any money? Writing an ebook and selling it through *other people* is also another form of passive income....

I also have plans for an ebook + software package on stock market investing which will I expect will increase my passive income significantly....

How about you?

Just something you might like to think about....

- Dien Rice

"Financial freedom" is being free not to work if you choose not to.

It is a state whereby you can choose to spend your day watching television, or doing private Physics research, or studying your navel, and still receive enough income to cover your living costs.

Definitely not a bad situation to be in.

So why is it that most people aren't financially free? Why is it that some people can stay at jobs they might find quite boring?

The reason is they are lacking in financial education. You can't blame them though. In my opinion, schools don't teach a lot about good financial skills. They teach you to work hard, choose subjects to go to a particular profession, and then work in that profession to support your lifestyle. At least that's the impression I got when I was in highschool and going through career guides -- "investor" and "entrepreneur" weren't in the list of what we could choose to be when we grew up.

I believe that too many people are focused on their ACTIVE income, being the income they derive from hourly work, usually at a job. It's the main focus throughout school, and seems to be the main focus of many people.

What is your focus? If you ask yourself, "How do I make more money?", do you start thinking of ways to get a salary raise or a promotion, or do you think of ways to invest more?

The Key to Financial Freedom is building your Passive Income.

Passive Income is income you receive without having to work. Income you'd receive if you sat at home all day, or went out to see movies. Things like rental income from property, dividends from shares, royalties from products, and so forth.

For it is only with Passive Income that you can truly be financially free. If Active Income is your only source of income, then you need to continue at your work, job, and so forth to meet the bills.

I'm not saying to quit your jobs. Active income can be important, especially to assist in building your passive income. What I am saying is that your focus should be on your passive income, not your active income.

Consider the limits you face with active income as compared with passive income. With active income, where you are usually paid an hourly rate, you are limited by the number of hours in the day. With passive income, on the other hand, there aren't so many "set" limits, as your passive income can continually grow with more, and better investments.

If you look at the richest people in the world, you'll find that most of them derive the majority of their income and wealth from passive income. Look at Bill Gates. Do you think his salary made him rich, or was it the creation of his company that will continue whether he works there or not?

With this in mind, I'm often surprised at how some people can spend many years studying and improving their skills to build their active income, but spend little time on any skills relating to their passive income.

So, the message I deliver today is, work on building your passive income, and build up your financial education.

- Thomas Rice.

Hi Thomas!

Thank you for contributing to the forum... :)

I hope you don't mind if I give a quick intro about you....

Thomas started his first businesses when he was in his early teens. He started his first company at age 19.

Right now, Thomas is working part-time and studying finance full-time....

But even though he is only working part-time, his income is greater than that of many people who work full-time, because he has practiced what he spoke about....

Thomas is also my brother, and I am constantly learning a LOT from him!

> If you look at the richest people in the
> world, you'll find that most of them derive
> the majority of their income and wealth from
> passive income. Look at Bill Gates. Do you
> think his salary made him rich, or was it
> the creation of his company that will
> continue whether he works there or not?

That's an excellent point....

The RICH in general make most of their money from passive income, which means from their ownership in shares, property, or intellectual property (like ebooks and other things)....

Then, even if they stop working, the money still flows in....

Thanks for making some great points.... :)

We can ALL learn a lot from you, Thomas.... :)

Thomas may be my brother, but by any measure he is an incredibly remarkable guy.... When he talks, I listen, because I have seen first-hand how remarkable many of his accomplishments have been....

Thanks for making those excellent points. :)

- Dien

Thanks Dien. :)

I thought I’d take this opportunity to clarify my thoughts on employment, in case anybody got the impression I was against it in my earlier post, which I’m not. As a full-time university student, I still work two part-time jobs that total 28+ hours per week, and assist one of my lecturers with research on the side.

So, why do I work these two part-time jobs, when I stress the importance of passive income over active income?

Well, there are two key reasons.

Firstly, active income and passive income can easily coexist. Initially, active income is a great source of funds to build your passive income if you choose to build it through property or stockmarket investments. You can of course build it by taking a more entrepreneurial route and set up a small business.

Secondly, I do not view employment as simply a way to earn money. I believe there are two components to employment – the benefits you receive through your wages, and the benefits you receive through the knowledge and skill you learn or improve.

The former reason is the primary one many people focus on, I think, in their efforts to become richer. I, on the other hand, am more focused on the experience and knowledge I am picking up.

That is why I am working at a stockbroking firm, and at a tax consultancy, rather than at McDonalds or Burger King. When I was younger, I never got a job at places like McDonalds or Burger King. Was I just being lazy? I’m sure some of my friends would say so, seeing as they all worked at such places. I never thought working at such places would build up my skills though, so instead I went to work on my own small businesses and gained good experience that way.

So, the point? Taking on jobs that will build the skills you lack and want to have can be very valuable.

- Thomas Rice.

Thanks for sharing your valuable outlook, Thomas... :)

> So, the point? Taking on jobs that will
> build the skills you lack and want to have
> can be very valuable.

That's an excellent point. Choosing a job which will help give you important skills you need may be even more important than choosing a job for the money....

I know Gordon has recommended that everyone should at least once get a job which will give them experience in sales. I think the reason is because sales skills can help you no matter WHAT you end up doing.... As long as you have to deal with people (which means everybody), then sales skills can be useful....

Thomas, I hope you don't mind me pointing out that you are the guy I mentioned earlier who negotiated a 40% RAISE after working for only 3 WEEKS at your part-time job.... So you're clearly doing SOMETHING right! :)

And Thomas also has a lot of passive income flowing in to his pocket, since he has really applied some of the advice he has shared with us. He's living this stuff and is proof that it works. :)

Thanks again :)

Cheers,

Dien

Work was invented by a spaniard. His name was Manuel Labour. :o)

I love this stuff... and I'm actually quite surprised it didn't generate more discussion. Not so much on the principles - they're fairly basic to understand - but on the different forms of Passive Income.

I mean, sure there are stocks and rental income et al. But there are other more obscure forms which are a part of a larger form.

Royalties don't just have to be from books. They can be from a business that's franchised.

Rent doesn't have to come from real-estate, it can come from just about anything - canoes, trailers, etc., etc. Once your rental business is established and set up to run under management, then your income is passive.

Any type of business can be set up to run under management, if you plan it that way from the start.

I like to use a lawnmowing business whenever I'm explaining this to someone. It goes something like this...

First, get a job mowing lawns - if you can. This teaches you the inside skills - time taken for certain sized yards, quoting formulas, etc.

Then start your own business. Build it to the point where four of your work days are full. Once this stage is achieved hire someone to mow for you. If you have to give them half the money then so be it. The main aim is to NOT WORK.

Once this other person is mowing the lawns you are now free to use your system to get more clients.

When there's enough work for another four days hire another person.

You now have two people mowing four days a week and all you do is "work the marketing system".

IF a lawn is mowed for $30 and each worker does five a day, the total revenue for each day is $150 for each worker - $300 in total. If you give them two thrids of the money they get $100 a day each and you also get $100 a day for nothing.

Use the same system to add a couple more workers and you're up to $200 a day in your hand and not mowing any lawns.

Make sure that everything you do during your growth is documented so you can do the same thing all the time. You've got a written system and there's now no limit to your growth.

But the key is, you have to begin with this aim in mind. Otherwise you may find yourself mowing lawns seven days a week and have no time left to hire anyone else.

Okay, so you had to do a little bit of work in the beginning. But it's worth it, isn't it?

Apply the same overview to all kinds of business - learn the skills, build the system so you don't have to work. Begin again. Same thing or something different. Whatever turns you on.

Want to own a nightclub? Work in one for a while first. Speak to the owner. Ask them about their business, they'll love to tell you.

Another side thought... Someone was telling me they wanted to complete their Diver's Instructor's Certificate so they could open their own Learn To Dive School. They asked me what I thought.

My suggestion... you don't even need to know how to swin to own a Learn To Dive School. All you do is hire the qualified instructors. Simple. Apply this principle to all kinds of other businesses.

Passive Income... all space can have an ad on it. Sell the space for fixed time periods, like six months, and you have Passive Income for that period - just like rental real-estate. The difference though, much lower carrying costs.

I know a guy... one of the nine companies he owns sells landscaping supplies. He sells to landscapers and the DIY types. He gets his supplies from people who gather bark, rocks, dig dirt, etc. He's placed himself in a beautiful position... he's a middle man and does the least amount of work.

Other do the hard work of gathering the materials that he sells. Others do the hard work of using the materials he sells to them for their own business.

Middlemen are smart. Like someone who sells tools to the miners - they don't make the picks and shovels (hard work), they sell them to those who use them to do more hard work.

My friend works for this man. Has done for four years. I asked if he'd ever asked his boss how he was able to create nine very successful companies (all middleman based). His answer... No!?

And he still hasn't asked after me asking him. Nor is he interested in the slightest in asking, even though he wants to be more financially secure than he is now.

Oh well... I guess he doesn't want it hard enough. He'll spend two hours a day reading fiction but not anything that has more substantial uses. Go figure. Maybe one day he'll wake up. But by then he may be at retirement age.

Passive Income, middlemen, renting anything, selling directly, service businesses, joint ventures, import/export, the possibilities are literally endless.

But realize this... sit at home twiddling your thumbs and reading comics and you'll go nowhere. You've got to get up off your butt and DO SOMETHING and SEE IT THROUGH UNTIL THE END, whatever end that turns out to be.

And that's the whole point of the Pyramid of Accomplishment.

Thanks for reading my "jumpy" thoughts.

Michael Ross.