by Perry Jones
Cash is king!
This aphorism from real estate investing perfectly describes the little known method the rich actually use to accumulate millions of dollars. This report reveals 20 sources of passive income. Put any or all of these sources into place and sit back and watch the dollars roll on with no (or very little) further effort on your part.
If you truly want to get rich and live a life of luxury, then you must master the ability of generating cash flow from passive income sources. Without this ability, your income will be limited to traditional ways of making money, such as working. Working will never free you from having to work. You must do something different than working in order to obtain the income you need to live the lifestyle you desire. Passive income is the key.
Before you begin any investment plan, the first rule is to consult with a qualified investment advisor. By talking over your plan and considering possibilities you may not have considered, you will protect your capital to the greatest degree and help protect it from potential loss whiule multiplying your return.
This article will not consider the cost of entry to any investment nor will we look at rates of return. These will fluctuate - possibly every year or even over the course of a year- depending on the economy, conditions set by the SEC and other regulatory bodies and the IRS. This article will consider only the 20 possible sources of passive income; you will need to conduct further research to determine if any investment is appropriate for you.
1. ETF's - Exchange Traded Funds - This is a fund that tracks the performance of an index such as the Dow Jones or Standard and Poor 500, a basket of assets or a commodity. Trading in the same manner as a stock, its price will vary according to the days trading demands. Benefits of owning an ETF include the ability to buy short, buy on margin and to buy as little as one share. Expense ratios are often lower than mutual funds. A common ETF is called a spider - SPDR - and tracks the S&P 500 index. Look for the symbol SPY to research or to purchase.
2. REIT - Real Estate Investment Trust - One of my favorite investments because you own a portion of the real estate (or mortgages) the trust invests in. These also trade like a stock on the exchanges. An Equity REIT buys ownership (equity) in properties while a Mortgage REIT buys the mortgages on properties. Two key advantages to owning an REIT are the tax advantages and the liquidity of the security - you trade it just like a stock.
3. Canadian Oil and Gas Trust - This is an organization that invests in oil and/or gas production and possibly mining in Canada. Several of these are now trading on the American (US) exchanges. Purchase is the same as purchasing a stock in any other company. Tax advantages are similar to those of an REIT and a big advantage - the one I like the most - is that some of these trusts pay ridiculously high dividends - and they pay monthly! My advice: do your research, find a Canadian Oil and Gas Trust you like and then invest as much as you can.
4. MLP - Master Limited Partnership - Want a limited partnership that you can sell or trade as easily as a stock? Enter the Master Limited Partnership. These hybrid organizations feature the limited liability of a partnership while enabling you to trade the partnership units - investment units - just as you would a stock. What could be better? A MLP offers distributable cash flow as well as income and these terms must be mastered and understood before a reasoned decision can be made regarding the purchase of an MLP for your investment portfolio.
5. Annuities - Who has not heard of an annuity? But do you know how they work? Let's keep this simple: an annuity is nothing more than a contract you sign with an insurance company that guarantees to pay you a certain set amount of income over a period of time. You pay for an annuity upon signing and then the insurance company repays you the amount of your investment plus the "profits" (we'll keep this simple and not use the technical term) over a period of several (or many) years. These are generally considered safe stable investments appropriate for a conservative portfolio.
6. TIPS - Treasury Inflation-Protected Securities - Offered by the U.S Treasury, these are securities that are indexed to the rate of inflation meaning your dividend will increase as the rate of inflation increases. A TIPS pays interest every six months and pays the principal upon maturity. Also a conservative investment, you may want to consider these if you are looking to preserve and protect capital from the ravages of inflation while providing a consistent and dependable income, but your money may not grow at the rate you would prefer - but then we aren't looking at capital appreciation anyway.
7. Dividend Paying Stocks - Finally we get to what is perhaps the most familiar method of passive income. Anyone who knows anything about Wall Street knows that companies pay dividends to people who own their stock. Right? Well, most of the time , if it is a well known and established company. Many newer and smaller companies will use their income to grow the company instead of paying dividends and any company that incurs financial trouble may stop paying dividends. So if you are going to buy stock to acquire the income make sure the company has a track record of paying dividends. The best known American companies - commonly referred to as the "Blue Chips" are also the companies that traditionally have paid the best dividends. As with all other investments, research is necessary to capture the best dividends and target those companies with the best potential in future years.
8. Covered Calls - This is a passive investment instrument that is often considered risky. But it is not. A covered call is selling the option to buy stock that you own. You do not sell the stock, you only sell the option to buy that stock at a future price and time. The person buying the covered call buys the option at the price you agree upon - actually at which the market agrees upon - and you just set back and forget it. Well, not quite. The person who has bought the option has the right to buy your stock at any time between the time you sold the option and the expiration of that option. Writing (selling) a covered call is the only options investment that is considered safe enough by the IRS to be included in a 401K or other retirement plans. But you must do your homework and thoroughly understand the world of options before using this method.
9. Real Estate - Everyone knows what real estate is and everyone knows - or at least is intuitively aware - that big money can be made from real estate. Real estate provides tax advantages as well as the opportunity to highly leverage your investment - leverage being a factor that is limited or absent in many other investments. Many real estate advisors and gurus insist that the one house at a time or the flipper strategy or fixer upper or wholesale method or other flavor of the month is the absolute best way to make money in real estate. Generally speaking, avoid all that. Making big money - meaning massive income - in real estate is possible with highly leveraged deals which are a certainty only in commercial property. Multiple family properties, office buildings, retail facilities and warehouses would all constitute commercial property. Of these, the best strategy is to invest in multiple family properties. The bigger, the better. This requires knowledge and education more than it requires capital. Capital can always be acquired through your network, but knowledge is the one ingredient that will make this passive investment method work. And, with a big property, the income from that one property may be all you need to secure your retirement - today!
10. Business Ownership - No, this isn't what you think. Owning a small business for most people is worse than working 9 to 5. In your own small business you get caught up in the details, trying to make the business go, searching for a market, dealing with customers; it quickly becomes more than a full-time job. That's OK if that's what you love to do. But, what we mean here is starting a business or franchise with the short term goal of handing it off to someone to run. The faster you can do this the better. If you can do it from the very beginning so much the better - the more time you free for yourself, the more time you will have to enjoy and/or create more passive income sources. A book that will help you is The E-Myth Revisited by Michael Gerber, another is the Four Hour Workweek by Timothy Ferris. Both of these books will help you structure your business ownership in a way that frees you from actually running the business yourself - margaritas on the beach anybody?
All of these sources require work to set up, but once established, they can be structured to run hands free. The two books mentioned in item 10 above will help you structure your passive income sources to be truly hands free income.
11. Private Lending - Private lending has been around since people have been around. Essentially private lending is nothing more than lending out some of your excess cash to a trustworthy person who needs it. This has not always been easy or fruitful for the person who has had money they wanted to invest. As a result, several online services are now available that will accept your money and distribute it under your direction to those you feel are qualified; search for person to person lending on the major search engines to identify organizations you can use. The primary benefit of private lending is that the interest rates are often much higher than you would obtain by parking your money in a CD or bank.
12. Tax Liens and Notes - A primary benefit of tax liens is the higher interest rate you receive on your investment plus the fact that your principal is backed by real estate. Please note that you will almost never receive the property from investing in tax deeds, liens or notes; the primary benefit is the favorable interest rate and the security resulting from a real estate backed transaction. Avoid organizations that suggest you will be receiving the property the tax instrument is against. Another benefit of this type of passive income is that you can invest online from almost any state in the country - be sure to review Texas tax deeds, interest can be as high as 50% annually in some cases.
13. Bonds - Ok, you know about bonds - they are a conservative investment for old people and people afraid of the stock market right? Wrong. A bond can provide a secure and stable source of income for anyone. By definition, a bond is a debt issued by an authorized organization - often a corporation, municipality or utility. A bond sells for the issue price, matures (is paid back to you) at the principal (face amount or nominal price) and in between you collect interest that is called the coupon rate. Bonds are often purchased in the form of mutual fund bond funds. Some of these can be very lucrative with a yield exceeding that of equity funds but these are often hard to find. But they are there!
14. Mutual Funds (Income Funds) - As we are only considering sources of passive income, we are only going to look at income mutual funds. These may be called "growth and income" funds or "income" funds or "value" funds. Nearly every mutual fund family will have their own set of income or growth and income funds. Morningstar and other services provide third party ratings that you can use to identify the safest and highest paying income funds. Invest wisely and always consult a qualified investment advisor before investing. Mutual funds are also required to send you a prospectus (a formal disclosure of the funds objectives and operating guidelines) for your review before you can invest. Review the prospectus carefully and consult with your financial advisor for terminology you may not understand.
15. T-Bills, T-Bonds & T-Notes - Treasury Bills, Treasury Bonds and Treasury Notes - Considered to be the safest of all investments because they are issued by the United States Treasury Department, these vehicles are also among the lowest yielding. But you sacrifice yield for security whenever you invest. T-Bills, Bonds and Notes are most often purchased through your bank, broker or they may be purchased directly from the US Treasury Department through their Treasury Direct online service. Although you will not receive a high rate of return, the security of your investment cannot be any higher than it is with these investments.
16. Unit Investment Trust - A Unit Investment Trust is one of three different types of investment companies, the others being a closed end fund and the familiar mutual fund. UIT's offer securities in the form of "units" that represent a unit of their investment portfolio. This portfolio is often an unmanaged portfolio consisting of stocks and bonds. Units are usually sold in amounts of $1,000 and investors or "unit holders" receive dividends from the units they hold. A unique feature of a UIT is its termination date. Unlike most other corporations and investment company organizations, which exist in perpetuity, a UIT has a defined termination date which is set upon inception. When this date arrives the UIT is terminated and the assets held are sold. The proceeds from this sale are then distributed to the unit holders.
17. Preferred Stock - A Preferred Stock is a security issued by a corporation that usually features a specific dividend rate. Preferred stock usually does not have voting rights except sometimes in extraordinary events. Preferred stock also receives priority over common stock holders when dividends are distributed - preferred stock holders must be paid first. And preferred stock holders also receive preference if the company is ever dissolved. Your rate of return with preferred stock may not be high, but the security of your investment is higher than with more risky investments.
18. Corporate Backed Trust Securities (CABCO) - Also known as Corporate Asset-Backed Securities, these investments are issued by corporations and are based on a pool of underlying assets. The cash flow from these assets provide the dividend payments made to the holders of the security. The asset pool can consist of almost any type of asset which provides a cash flow. Usually sold initially to a market maker type organization such as an investment bank, these securities may be resold to the general public by the broker. Contact your broker for more information on these types of investments.
19. Music Publishing - You don't know about music publishing? The artist may get the glory (and often the money) but the publisher Always gets the money. If you own the rights to a song or sheet music you are the publisher and you get paid whenever that song is played or performed in public. Although the current rate is only 8 cents (US) per "performance" think of all the radio stations, bars and clubs in the country where your song may be being played right now. Yes, bars and restaurants must pay you whenever your song is played in their establishment. You don't have to worry about going around to each bar, hotel lobby or elevator or restaurant (More places!) in the country to collect your eight cents - this is handled by any one (or some combination) of just three organizations which pretty much manage all music throughout the world - ASCAP, BMI and for the internet SoundExchange. Yes, you do need to register with these organizations so they know where to send your checks, but this can be a very lucrative source of passive income.
20. Copyrights, Patents and Licenses - If you are an author you get paid every time a book of yours is sold. Ok, this is obvious, but you can also republish public domain material under a new copyright if you change it by at least 20% or add at least 20% more material to it. The easy part (some would say not easy) is the writing of the book itself. The hard part is getting other people to buy it, that involves marketing which is beyond the scope of this article, but if you can get a bestseller on your hands, the royalties (payments you receive from being the copyright holder) received can be very high.
A patent is an innovation (process) or invention (thing). You get paid when the item represented by the patent is used or sold by some other organization or the public. The patent protects your right to exclusive ownership of that process or invention for a certain amount of time.
A license is also possible to sell to the market. What if you know a particular process or procedure that no one else does? Can you sell this knowledge? Yes, you can. And the way to do it is to license an organization to use your knowledge in the form of a process or procedure. Check out inventright.com for a guide on how to do this.
Bonus
21. Movie & Other Obscure Investments - We live in a dynamic world and there will always be investment vehicles being conceived for a need. Also, more obscure investments are available but generally are unknown outside of their particular industry. Movie investments are one of these. Movies often need financiers ready to fund the production of the movie project. When the movie is released to the public and begins to make money the financiers receive their capital and return on investment. This can be a good way to make a lot of money if you back a blockbuster or a good way to lose a lot of money - look at how many movies do poorly. Do not invest in this vehicle unless you are an industry insider.
Other obscure investments include exploration financing, water rights, coal leases, limited partnerships, commercials and commercial funding (yes, tv commercials and infomercials), receivables financing, sports team ownership, etc, etc, etc. If you have an interest in investing in any of these areas you need to find someone with excellent knowledge of the field and with a good track in investing in that industry. Consult with them intensely allowing them to guide your investment decisions. Generally, the best policy is to invest only in those areas where you are familiar and never, never invest more than you can afford to lose.
"Income Deposit Security" - also known as "enhanced income security" or "income participating security," this form of security is a hybrid combining a bond with a stock. These hybrids are rare - very rare, but, at present, are almost immune to fluctuations in the economy. And, they boast high yields. You may want to ask your advisor about them.
Summary
Passive income investing is the key to securing income. Income is cash flow. Cash flow is king. You cannot invest future income or a projected return or an eventual equity position; you can only invest the cash you have on hand today. Likewise, you cannot pay bills or buy groceries or pay the mortgage or tax man with anything other than cash or credit. A projected return or equity position will not pay todays bills or put food on the table. Capital appreciation is great - for tomorrow. I prefer cash in hand today. The more cash flow you have coming in now, the greater that tomorrow will be. Guaranteed!
The information presented in this and in all articles and in this blog are for educational and informational purposes only. No advice is given or implied. Always seek the advice or counsel of a financial or tax accountant or legal advisor before making any decisions regarding the investment of your money.
by Perry Jones from Ezinearticles.com
Thursday, July 7, 2011
What is Passive Income?
by Ryan J. Taylor
Personal finance gurus are always talking about how in order to truly become financially free, you must have enough passive income to exceed your expenses. That's great, but what is passive income and how do you get it?
In its simplest form, income can be broken down into four categories: earned income, portfolio income, leveraged income, and passive income.
Earned income, as you probably figured, is income that requires you to show up to get paid. Money is earned from your individual time and energy. This is how most people earn their living - as an employee.
Portfolio income is the interest, dividends and capital gains that comes from the ownership of stocks, bonds and mutual funds.
Leveraged income is created when one activity earns more money with larger captured audiences. A speaker at a conference, for example, may largely put in as much effort to arrange and give a speech to 20 people as 1,000 people, but can earn much more money with the larger group.
Passive income is income that requires an upfront investment and keeps paying over and over while the required involvement dissipates. The initial effort creates a cash machine that brings money in many times over, though the participation becomes minimal.
As you can tell from above, earned income only pays you what you put in. In other words, it requires your time and. You can earn raises and promotions, but your income is limited because there is only one of you.
With passive income, on the other hand, you can create multiple streams of income that continues to bring in money long after you did the work once. As you continue to add more and more cash generating machines, your passive income streams increase along with your wealth.
Let's look at a few examples so we can get started making passive income streams.
Cash Flow Positive Real Estate: Passive income can be generated from residential or commercial properties. Real estate is what most people think of when it comes to passive income. But, it's only passive income when the rent you receive is greater than your mortgage, taxes, maintenance and expenses. Otherwise, your rental property is just a liability that costs you money - not makes you money. If this is the case with you, you are probably speculating to make money off the appreciation.
License a Patent: Got a great idea or an invention? License it and get paid anytime anyone uses your licensed patent.
Become an Author: Copyrighting materials that earns royalties, such as books or e-books, music or lyrics, and photos or images, is another way entrepreneurs create passive income.
Automated Fulfillment Websites: Build an e-commerce site that can effectively process and fill orders with little involvement in order to produce some passive income.
Pay for Use Items: Vending machines, quarter car, coin laundries, washes, video arcades and storage units can all earn passive income.
Build a Successful Business: A successful business in these terms means a business that can run with or without your heavy involvement. How often, for example, do you see the owner of a McDonald's franchise on location? A franchise that is cash flow positive and has a team to run the business is earning passive income for the owner.
Realize that passive income does not necessarily mean that there is no involvement on your end. Creating passive income streams often involves a large investment up-front, but in the end it requires little or no interaction.
Also, just because you make an earned income now (opposed to a passive income) does not mean you should quit you day job and open up a quarter car wash. To start building passive income streams you will likely need to keep making an earned income in order to convert that income into passive income by purchasing rental properties, etc.
Once your passive income is greater than your expenses, you can make the decision to stop making an earned income and live the rest of your life financially free.
Becoming a millionaire is easy when you know how. Increase your wealth by visiting Millionaire Money Habits - http://www.mmhabits.com
Article Source: http://EzineArticles.com/?expert=Ryan_J._Taylor
Article Source: http://EzineArticles.com/1122708
Personal finance gurus are always talking about how in order to truly become financially free, you must have enough passive income to exceed your expenses. That's great, but what is passive income and how do you get it?
In its simplest form, income can be broken down into four categories: earned income, portfolio income, leveraged income, and passive income.
Earned income, as you probably figured, is income that requires you to show up to get paid. Money is earned from your individual time and energy. This is how most people earn their living - as an employee.
Portfolio income is the interest, dividends and capital gains that comes from the ownership of stocks, bonds and mutual funds.
Leveraged income is created when one activity earns more money with larger captured audiences. A speaker at a conference, for example, may largely put in as much effort to arrange and give a speech to 20 people as 1,000 people, but can earn much more money with the larger group.
Passive income is income that requires an upfront investment and keeps paying over and over while the required involvement dissipates. The initial effort creates a cash machine that brings money in many times over, though the participation becomes minimal.
As you can tell from above, earned income only pays you what you put in. In other words, it requires your time and. You can earn raises and promotions, but your income is limited because there is only one of you.
With passive income, on the other hand, you can create multiple streams of income that continues to bring in money long after you did the work once. As you continue to add more and more cash generating machines, your passive income streams increase along with your wealth.
Let's look at a few examples so we can get started making passive income streams.
Cash Flow Positive Real Estate: Passive income can be generated from residential or commercial properties. Real estate is what most people think of when it comes to passive income. But, it's only passive income when the rent you receive is greater than your mortgage, taxes, maintenance and expenses. Otherwise, your rental property is just a liability that costs you money - not makes you money. If this is the case with you, you are probably speculating to make money off the appreciation.
License a Patent: Got a great idea or an invention? License it and get paid anytime anyone uses your licensed patent.
Become an Author: Copyrighting materials that earns royalties, such as books or e-books, music or lyrics, and photos or images, is another way entrepreneurs create passive income.
Automated Fulfillment Websites: Build an e-commerce site that can effectively process and fill orders with little involvement in order to produce some passive income.
Pay for Use Items: Vending machines, quarter car, coin laundries, washes, video arcades and storage units can all earn passive income.
Build a Successful Business: A successful business in these terms means a business that can run with or without your heavy involvement. How often, for example, do you see the owner of a McDonald's franchise on location? A franchise that is cash flow positive and has a team to run the business is earning passive income for the owner.
Realize that passive income does not necessarily mean that there is no involvement on your end. Creating passive income streams often involves a large investment up-front, but in the end it requires little or no interaction.
Also, just because you make an earned income now (opposed to a passive income) does not mean you should quit you day job and open up a quarter car wash. To start building passive income streams you will likely need to keep making an earned income in order to convert that income into passive income by purchasing rental properties, etc.
Once your passive income is greater than your expenses, you can make the decision to stop making an earned income and live the rest of your life financially free.
Becoming a millionaire is easy when you know how. Increase your wealth by visiting Millionaire Money Habits - http://www.mmhabits.com
Article Source: http://EzineArticles.com/?expert=Ryan_J._Taylor
Article Source: http://EzineArticles.com/1122708
What Are Active, Passive, and Semi-Passive Income and How Can I Use Them to Make More Money
by Johan Sams
Many articles cover different ways of saving money as well as adopting a proper attitude towards saving money and managing your personal finances, without really venturing into the realm of earning money. Today I want to go over three different types of income (active, passive, and semi-passive), how they all work, and how you can utilize each type to continually increase your net worth.
What is Active Income
Active income is the main source of income for the vast majority of people. It requires a direct exchange of time for money. The more you work, the more money you will make.
An example of active income would be the typical salaried worker. They work 40 hours a week in exchange for a given amount of money.
Pros of Active Income
You know exactly what you will get in return for your time
The time you spend working directly corresponds with how much you will make
You see results immediately
Cons of Active Income
You have less free time for yourself
The time you spend working directly corresponds to how much you will make
In order to increase your active income you have to do one of two things.
Work more
Get a promotion or a raise
For the person whose goal is financial freedom, working more is not an appealing option, and most professions are limited by the market when it comes to increases in salary. This makes active income a great candidate for secure and consistent cash flow which can be supplemented with other types of income.
What is Passive Income
Many people see passive income as the Holy Grail to gaining wealth. It initially takes work to get started, but will continue making you money even when you aren't working. This is what makes it so appealing.
An example is selling stock photography or graphics online. Once you do the work to get the files posted, you can continue earning money without doing a thing.
One of the most common problems people have with this type of income is that they will only get to a certain point of earning a small amount of money, only to lose interest and pursue something else. The trick to passive income is to try a few things out and see what works, then pour your time into a select group of ideas to build them up. Long term cultivation can yield a large amount of essentially work-free money.
Pros of Passive Income
You make money while you sleep
It frees up your time to pursue other money making ventures
It can provide a long lasting source of income
Cons of Passive Income
You usually don't make a lot of money all at once
It can sometimes take a long term commitment
It may eventually stop earning you money
By building up multiple income streams, you can focus your efforts on improving the ones that work best, while eliminating ones with a low return. As you continue to increase your passive income, you will eventually reach the point where you can pay for all of your expenses without the need for another job. This is part of my main goal and can be attained more easily than you might think. Notice I said "attained more easily" and not just "easily attained". Passive income still takes hard work and dedication, but the long term results are superior to active income.
What is Semi-Passive Income
Semi-passive income is a combination of both active and passive income. Semi-passive income will continue to make money when you aren't working, but it does require a certain degree of maintenance or management.
Owning your own company is an example of semi-passive income. Your business will continue to earn money without your presence, but usually requires you to check in and make management decisions along the way. The more you put into it, the greater the potential for earning becomes.
Another quick example of semi-passive income would be acting as a landlord. You make money every month from the rent payments, but you still have to check in frequently to ensure everything is as it should be, as well as taking care of any potential problems with the property or tenants. It is partially a long term investment as well because you earn money monthly from it and expect it to appreciate in value over the years.
Pros of Semi-Passive Income
If you own a business, there is large potential for growth because your employees are actively growing your company
It frees up time for other endeavors
You can sell a company or house at any time
Cons of Semi-Passive Income
It requires more responsibility than standard passive income
There is a certain degree of management and maintenance that is required
Semi-passive income is so tantalizing because it can earn you money without work, but if you spend some extra time with it, you will begin to see greater returns.
The Trick to Earning More Money
Find ways to make money using all three types of income and then continually analyze your progress and focus only on the highest performers.
Oftentimes, having an active income job and pursuing different passive income ideas is the best way to go, and is what many people strive for. Multiple sources of income protect you from the unexpected and also hold the potential to maximizing your earning ability. Once you find a way to earn enough passive income, you will have the choice of working only when and if you want to.
How To Start Earning Multiple Types Of Income
Most people already have monthly expenses and work an 8-5 job, so they feel that the only way out of that job is to get rid of everything they have. The truth is that while it is a good idea to start over from scratch if you have the means to, you don't have to eliminate your monthly expenses to get ahead.
The old adage, "Slow and steady wins the race", portrays the attitude that is required when you begin considering different income options. Find one idea and work with it. A lot of times, we think of one idea but don't see an immediate return so we move on to something else. This is the one deadly sin of passive income. You have to practice patience before you will begin to see progress.
http://www.TheBestMoneyBlog.com
Article Source: http://EzineArticles.com/?expert=Johan_Sams
Article Source: http://EzineArticles.com/4639126
Many articles cover different ways of saving money as well as adopting a proper attitude towards saving money and managing your personal finances, without really venturing into the realm of earning money. Today I want to go over three different types of income (active, passive, and semi-passive), how they all work, and how you can utilize each type to continually increase your net worth.
What is Active Income
Active income is the main source of income for the vast majority of people. It requires a direct exchange of time for money. The more you work, the more money you will make.
An example of active income would be the typical salaried worker. They work 40 hours a week in exchange for a given amount of money.
Pros of Active Income
You know exactly what you will get in return for your time
The time you spend working directly corresponds with how much you will make
You see results immediately
Cons of Active Income
You have less free time for yourself
The time you spend working directly corresponds to how much you will make
In order to increase your active income you have to do one of two things.
Work more
Get a promotion or a raise
For the person whose goal is financial freedom, working more is not an appealing option, and most professions are limited by the market when it comes to increases in salary. This makes active income a great candidate for secure and consistent cash flow which can be supplemented with other types of income.
What is Passive Income
Many people see passive income as the Holy Grail to gaining wealth. It initially takes work to get started, but will continue making you money even when you aren't working. This is what makes it so appealing.
An example is selling stock photography or graphics online. Once you do the work to get the files posted, you can continue earning money without doing a thing.
One of the most common problems people have with this type of income is that they will only get to a certain point of earning a small amount of money, only to lose interest and pursue something else. The trick to passive income is to try a few things out and see what works, then pour your time into a select group of ideas to build them up. Long term cultivation can yield a large amount of essentially work-free money.
Pros of Passive Income
You make money while you sleep
It frees up your time to pursue other money making ventures
It can provide a long lasting source of income
Cons of Passive Income
You usually don't make a lot of money all at once
It can sometimes take a long term commitment
It may eventually stop earning you money
By building up multiple income streams, you can focus your efforts on improving the ones that work best, while eliminating ones with a low return. As you continue to increase your passive income, you will eventually reach the point where you can pay for all of your expenses without the need for another job. This is part of my main goal and can be attained more easily than you might think. Notice I said "attained more easily" and not just "easily attained". Passive income still takes hard work and dedication, but the long term results are superior to active income.
What is Semi-Passive Income
Semi-passive income is a combination of both active and passive income. Semi-passive income will continue to make money when you aren't working, but it does require a certain degree of maintenance or management.
Owning your own company is an example of semi-passive income. Your business will continue to earn money without your presence, but usually requires you to check in and make management decisions along the way. The more you put into it, the greater the potential for earning becomes.
Another quick example of semi-passive income would be acting as a landlord. You make money every month from the rent payments, but you still have to check in frequently to ensure everything is as it should be, as well as taking care of any potential problems with the property or tenants. It is partially a long term investment as well because you earn money monthly from it and expect it to appreciate in value over the years.
Pros of Semi-Passive Income
If you own a business, there is large potential for growth because your employees are actively growing your company
It frees up time for other endeavors
You can sell a company or house at any time
Cons of Semi-Passive Income
It requires more responsibility than standard passive income
There is a certain degree of management and maintenance that is required
Semi-passive income is so tantalizing because it can earn you money without work, but if you spend some extra time with it, you will begin to see greater returns.
The Trick to Earning More Money
Find ways to make money using all three types of income and then continually analyze your progress and focus only on the highest performers.
Oftentimes, having an active income job and pursuing different passive income ideas is the best way to go, and is what many people strive for. Multiple sources of income protect you from the unexpected and also hold the potential to maximizing your earning ability. Once you find a way to earn enough passive income, you will have the choice of working only when and if you want to.
How To Start Earning Multiple Types Of Income
Most people already have monthly expenses and work an 8-5 job, so they feel that the only way out of that job is to get rid of everything they have. The truth is that while it is a good idea to start over from scratch if you have the means to, you don't have to eliminate your monthly expenses to get ahead.
The old adage, "Slow and steady wins the race", portrays the attitude that is required when you begin considering different income options. Find one idea and work with it. A lot of times, we think of one idea but don't see an immediate return so we move on to something else. This is the one deadly sin of passive income. You have to practice patience before you will begin to see progress.
http://www.TheBestMoneyBlog.com
Article Source: http://EzineArticles.com/?expert=Johan_Sams
Article Source: http://EzineArticles.com/4639126
The Truth About Passive Income
by PJ Van Hulle
I've been to more seminars and read more books about passive income than I can count. They make it sound so easy. When you set out to generate more for yourself, you may find that these seminars and books have left out some critical information.
First, it's important to know what passive income is and what it isn't.
Passive income is income that comes in whether you're working, sleeping or playing. The America Internal Revenue Service defines it as income from "trade or business activities in which you do not materially participate."
Some examples include:
* Rental income from real estate
* Earnings from a business that doesn't require direct involvement or participation from the owner
* Royalties from publishing a book or from licensing intellectual property
* Earnings from internet advertisement on your websites
* Dividend and interest
* Interest on private mortgages
* Income from vending machines that you own
* Income from an online business that you have put on autopilot
When I heard about this type of income for the first time, my whole world changed. I started looking for ways that I could buy or create assets that would generate passive income for me. If I wanted to buy a car, I stopped focusing on saving money to buy the car. Instead, I focused on generating enough income for my assets to buy the car for me.
At the time, I didn't have a lot of money. But everyone has to start somewhere, right? My first experience in this realm, other than interest on my savings account, was buying a candy machine, filling it with M&Ms and placing it in the lounge at my fencing club. I calculated the cost of a single M&M and figured out how many M&Ms I would give the other fencers for their 25 cents. Since I then knew my profit margin per sale, I discovered that I was making an average $25 per month in passive income after donating 10% back to the junior fencing program.
Some people think they are receiving passive income when they are actually receiving residual income. For example, an insurance agent may earn residual income as her clients renew their insurance policies. However, if the insurance agent leaves the company, that income goes away.
If you're involved in a networking marketing or multi-level marketing company in which you have to continue to work the business in order to receive income, that's not true passive income either. If you can stop working the business all together for as long as you want and still continue to earn income, that's passive income.
The big myth about passive income is that once you buy or create an asset that produces it for you, you're done. You may be under the impression that you don't have to spend any more time on it or manage it.
The truth is that there are varying degrees of "passive." For example, you can receive passive income from rental real estate, but real estate can be extremely time-consuming. Typically, when you buy a property, there is an initial stabilization process that can include anything from doing repairs to finding and screening new tenants. Once the property is stabilized, you may be able to sit back and just receive rent checks for a while, but then a tenant moves out, or the water heater breaks or a tree falls on the roof, and you have to spend time on the property again.
That's very different from a certificate of deposit at the bank where you buy it, and that's it. Of course, your potential income on the rental property is much higher than the potential income on the certificate of deposit if you know what you're doing.
Be conscious of the difference between passive and residual income, and of how exactly how "passive" an investment really is.
Why is passive income important?
Imagine if you didn't have to depend on a job, a spouse, your family, the government or anyone else for money. That's what this kind of income can provide for you.
In many traditional financial planning models, you're encouraged to figure out how much money you'll need by the time you want to retire. Upon retirement, you spend that money. This plan has some serious flaws. First of all, what if you live longer than you expect and outlive your money? Second of all, what if after putting in so much energy to save that money, you would prefer to leave it as a legacy instead of spending it?
The key to financial independence is this:
PI > E
When your passive income (PI) is greater than your expenses (E), you are in complete choice about what you do with your time because your assets will continue to pay for your lifestyle whether you work or not.
The truth is that to be financially independent, you don't need to be debt free, pay off your house, make a ton of money or be a millionaire. You just have to have more income than expenses.
It's that simple.
Passive income allows you to have MORE CHOICES. You can choose to live out of joy and freedom instead of debt and obligation.
On a more serious note, what if something terrible happened and you couldn't work anymore? How would you pay your bills? When you have enough passive income, you also have more peace of mind.
There are two parts to this formula. To become financially independent faster, you can increase your passive income, and you can also examine how to decrease your expenses.
So how do you get more passive income?
There are two main types of passive income. The first type is passive investment income. In order to receive passive investment income, you need to have funds available to invest in these income vehicles. If you have funds available to invest, you need to focus on doing an appropriate amount of research and due diligence to decide which of these passive vehicles are best for your situation and risk tolerance.
The second type comes from creating your own income vehicle with little or no money. For example, you might start a website that generates revenue from ads or join a network marketing company that will allow you to continue to receive income when you are no longer actively working the business. Or you might start your own business or become an affiliate of someone else's business.
If you have money to invest, you will probably be able to generate income more quickly than someone who doesn't. If you don't have any money to invest, you have to be willing to contribute time, energy, skills, resources, creativity or all of these.
In my experience, the most realistic way to build passive income is to focus on incremental growth. Start by taking one small step. Don't try to generate an additional $10,000 per month in passive income right this minute. Focus on what you can do to generate $10 per month in passive income and go from there.
What are 10 things that you could possibly do in the next 30 days to generate $10 per month in passive income? What's one action you can take this week?
Article Source: http://EzineArticles.com/?expert=PJ_Van_Hulle
Article Source: http://EzineArticles.com/4444274
I've been to more seminars and read more books about passive income than I can count. They make it sound so easy. When you set out to generate more for yourself, you may find that these seminars and books have left out some critical information.
First, it's important to know what passive income is and what it isn't.
Passive income is income that comes in whether you're working, sleeping or playing. The America Internal Revenue Service defines it as income from "trade or business activities in which you do not materially participate."
Some examples include:
* Rental income from real estate
* Earnings from a business that doesn't require direct involvement or participation from the owner
* Royalties from publishing a book or from licensing intellectual property
* Earnings from internet advertisement on your websites
* Dividend and interest
* Interest on private mortgages
* Income from vending machines that you own
* Income from an online business that you have put on autopilot
When I heard about this type of income for the first time, my whole world changed. I started looking for ways that I could buy or create assets that would generate passive income for me. If I wanted to buy a car, I stopped focusing on saving money to buy the car. Instead, I focused on generating enough income for my assets to buy the car for me.
At the time, I didn't have a lot of money. But everyone has to start somewhere, right? My first experience in this realm, other than interest on my savings account, was buying a candy machine, filling it with M&Ms and placing it in the lounge at my fencing club. I calculated the cost of a single M&M and figured out how many M&Ms I would give the other fencers for their 25 cents. Since I then knew my profit margin per sale, I discovered that I was making an average $25 per month in passive income after donating 10% back to the junior fencing program.
Some people think they are receiving passive income when they are actually receiving residual income. For example, an insurance agent may earn residual income as her clients renew their insurance policies. However, if the insurance agent leaves the company, that income goes away.
If you're involved in a networking marketing or multi-level marketing company in which you have to continue to work the business in order to receive income, that's not true passive income either. If you can stop working the business all together for as long as you want and still continue to earn income, that's passive income.
The big myth about passive income is that once you buy or create an asset that produces it for you, you're done. You may be under the impression that you don't have to spend any more time on it or manage it.
The truth is that there are varying degrees of "passive." For example, you can receive passive income from rental real estate, but real estate can be extremely time-consuming. Typically, when you buy a property, there is an initial stabilization process that can include anything from doing repairs to finding and screening new tenants. Once the property is stabilized, you may be able to sit back and just receive rent checks for a while, but then a tenant moves out, or the water heater breaks or a tree falls on the roof, and you have to spend time on the property again.
That's very different from a certificate of deposit at the bank where you buy it, and that's it. Of course, your potential income on the rental property is much higher than the potential income on the certificate of deposit if you know what you're doing.
Be conscious of the difference between passive and residual income, and of how exactly how "passive" an investment really is.
Why is passive income important?
Imagine if you didn't have to depend on a job, a spouse, your family, the government or anyone else for money. That's what this kind of income can provide for you.
In many traditional financial planning models, you're encouraged to figure out how much money you'll need by the time you want to retire. Upon retirement, you spend that money. This plan has some serious flaws. First of all, what if you live longer than you expect and outlive your money? Second of all, what if after putting in so much energy to save that money, you would prefer to leave it as a legacy instead of spending it?
The key to financial independence is this:
PI > E
When your passive income (PI) is greater than your expenses (E), you are in complete choice about what you do with your time because your assets will continue to pay for your lifestyle whether you work or not.
The truth is that to be financially independent, you don't need to be debt free, pay off your house, make a ton of money or be a millionaire. You just have to have more income than expenses.
It's that simple.
Passive income allows you to have MORE CHOICES. You can choose to live out of joy and freedom instead of debt and obligation.
On a more serious note, what if something terrible happened and you couldn't work anymore? How would you pay your bills? When you have enough passive income, you also have more peace of mind.
There are two parts to this formula. To become financially independent faster, you can increase your passive income, and you can also examine how to decrease your expenses.
So how do you get more passive income?
There are two main types of passive income. The first type is passive investment income. In order to receive passive investment income, you need to have funds available to invest in these income vehicles. If you have funds available to invest, you need to focus on doing an appropriate amount of research and due diligence to decide which of these passive vehicles are best for your situation and risk tolerance.
The second type comes from creating your own income vehicle with little or no money. For example, you might start a website that generates revenue from ads or join a network marketing company that will allow you to continue to receive income when you are no longer actively working the business. Or you might start your own business or become an affiliate of someone else's business.
If you have money to invest, you will probably be able to generate income more quickly than someone who doesn't. If you don't have any money to invest, you have to be willing to contribute time, energy, skills, resources, creativity or all of these.
In my experience, the most realistic way to build passive income is to focus on incremental growth. Start by taking one small step. Don't try to generate an additional $10,000 per month in passive income right this minute. Focus on what you can do to generate $10 per month in passive income and go from there.
What are 10 things that you could possibly do in the next 30 days to generate $10 per month in passive income? What's one action you can take this week?
Article Source: http://EzineArticles.com/?expert=PJ_Van_Hulle
Article Source: http://EzineArticles.com/4444274
How to Find a Great Return on Investment
by Ryan McLean
Ever since companies stopped paying for our retirements people have been looking for the best ways to invest their money and the best ways to get a great return on investment. Most people don't know how to get a good return on investment so they play the lotto in the hope that their numbers will come up. I want to show you what you need to do to find a great return on investment.
Most people are ignorant when it comes to finding a great return on investment. They are so scared of losing their money that they invest not to lose, but because they invest in order not to fail then they never win and they never become rich. People subscribe to the idea that in order to be secure you need to work hard, live frugally and save money and invest in diversified mutual funds. Financial planners recommend diversification as a great way to invest, but Warren Buffet, the richest investor in the world, says not to diversify but to focus. He say "diversification is protection against ignorance".
It is easy to find an investment that loses money. A friend of mine has recently bought a property as investment. He is currently losing $100 per week that he has to pay out of his pay packet. He is losing about 25% per year on his money and he calls it an investment. I can find properties that will earn me 10-30% return on investment. In order to be able to get a great return on investment you need education.
The best return on investment you will ever receive is the return on investment from your education. The best investment I ever made was when I got a membership card for my local library. It was absolutely free and I got training from some of the best financial teachers in the world. It changed my life and it changed my finances. I am becoming richer and richer because of that simple investment into a library card and into my education.
If you want to know how to find a great return on investment then you need to understand finances and you need to understand how to invest. There is no get rich quick formula that I can give you for finding a great return on investment. Because it depends on the investor. I have seen great investments lose money because of an inexperienced investor and I have seen bad investments make a lot of money when bought by a smart investor. So I can just recommend property, or stocks or a certain business because it depends on the investor.
The best way to find a great return on investment is to increase your financial intelligence. The most important word in finance is the word cashflow. This simple word has caused businesses to fail and caused great investment opportunities go bust. If you want to be rich then you need to focus on your cashflow. Anyone can find an investment that will lose money but it is a lot harder to find an investment that will make you money and generate you cashflow.
I am actually blessed because I work only part time, and so does my wife, so we have to think cashflow when we are investing. We don't have the excessive cashflow to purchase these 'investments' that lose money. I recommend that you focus your energy first in increasing your intelligence through financial education. Read books, search the net and do everything you can to learn all you can about finances. I went from having no clue to having a clear investment strategy to be financially free in 5 year in just 6 weeks. So anyone can do it.
Becoming financially free in just 5 years is possible for anyone. It doesn't matter what your current financial situation is, you can become rich and never have to work again in just 5 short years. You don't need a high paying job or a get rich quick scheme, you just need real training on creating real strategies for getting rich.
Go to http://www.richacademy.com and sign up now to start you free training on "How To Get Rich Without Making More Money". Don't waste any time, start training yourself to be rich today by signing up for your free teaching.
Article Source: http://EzineArticles.com/?expert=Ryan_Mclean
Article Source: http://EzineArticles.com/3064855
Ever since companies stopped paying for our retirements people have been looking for the best ways to invest their money and the best ways to get a great return on investment. Most people don't know how to get a good return on investment so they play the lotto in the hope that their numbers will come up. I want to show you what you need to do to find a great return on investment.
Most people are ignorant when it comes to finding a great return on investment. They are so scared of losing their money that they invest not to lose, but because they invest in order not to fail then they never win and they never become rich. People subscribe to the idea that in order to be secure you need to work hard, live frugally and save money and invest in diversified mutual funds. Financial planners recommend diversification as a great way to invest, but Warren Buffet, the richest investor in the world, says not to diversify but to focus. He say "diversification is protection against ignorance".
It is easy to find an investment that loses money. A friend of mine has recently bought a property as investment. He is currently losing $100 per week that he has to pay out of his pay packet. He is losing about 25% per year on his money and he calls it an investment. I can find properties that will earn me 10-30% return on investment. In order to be able to get a great return on investment you need education.
The best return on investment you will ever receive is the return on investment from your education. The best investment I ever made was when I got a membership card for my local library. It was absolutely free and I got training from some of the best financial teachers in the world. It changed my life and it changed my finances. I am becoming richer and richer because of that simple investment into a library card and into my education.
If you want to know how to find a great return on investment then you need to understand finances and you need to understand how to invest. There is no get rich quick formula that I can give you for finding a great return on investment. Because it depends on the investor. I have seen great investments lose money because of an inexperienced investor and I have seen bad investments make a lot of money when bought by a smart investor. So I can just recommend property, or stocks or a certain business because it depends on the investor.
The best way to find a great return on investment is to increase your financial intelligence. The most important word in finance is the word cashflow. This simple word has caused businesses to fail and caused great investment opportunities go bust. If you want to be rich then you need to focus on your cashflow. Anyone can find an investment that will lose money but it is a lot harder to find an investment that will make you money and generate you cashflow.
I am actually blessed because I work only part time, and so does my wife, so we have to think cashflow when we are investing. We don't have the excessive cashflow to purchase these 'investments' that lose money. I recommend that you focus your energy first in increasing your intelligence through financial education. Read books, search the net and do everything you can to learn all you can about finances. I went from having no clue to having a clear investment strategy to be financially free in 5 year in just 6 weeks. So anyone can do it.
Becoming financially free in just 5 years is possible for anyone. It doesn't matter what your current financial situation is, you can become rich and never have to work again in just 5 short years. You don't need a high paying job or a get rich quick scheme, you just need real training on creating real strategies for getting rich.
Go to http://www.richacademy.com and sign up now to start you free training on "How To Get Rich Without Making More Money". Don't waste any time, start training yourself to be rich today by signing up for your free teaching.
Article Source: http://EzineArticles.com/?expert=Ryan_Mclean
Article Source: http://EzineArticles.com/3064855
The Truth About Passive Income
by A. Annika Smith
If you search the internet for "passive income", you may find a definition or two, but mostly, what you find are websites trying to sell you on the passive-income-flavor-of-the-day. It's frustrating, I know. I don't know about you, but before I jump into any opportunity or even before I take a trip, I like to do my research. That being said, there are a lot of good opportunities out there. But before you start spending money, let's discuss what passive income is and, most importantly, what it isn't.
Webster's dictionary defines passive income as "of, relating to, or being business activity in which the investor does not have immediate control over income". I don't think that tells the whole story. Passive income is money that you receive over and over again without having to do much work (notice I didn't say "any work"). It is different than earned income in that you are not receiving money for your time (like you would a job). But depending on the passive income stream that you choose, you may in fact have immediate control over your income. But I'll get to that later.
Why would you want passive income? Well, like Robert Kiyosaki explains in his book Rich Dad Poor Dad, that is the main difference between the rich and the middle class. The rich invest their money in various passive income streams. When their passive income exceeds their expenses, then they are financially free. "Financially free" simply means that you do not have to have a day job to pay your expenses. And you are "free" to then do whatever you want!
What Passive Income Isn't
Before I go into telling you what passive income is, let me first tell you want it isn't. Passive income is not the same thing as "residual income". Residual income is money that you receive on a regular basis after having done work once. The best example would be TV sitcoms. Some actors get "residuals". Actors get paid for filming the show. Afterwards, some actors get paid each time the show repeats. Sales people that sell services, subscriptions, or renewable products (like insurance) sell that item once and, providing the customer renews, will get a commission off of each renewal. Royalties from the sale of books and music are also residual.
Many say that multi-level-marketing or network marketing sales provide you with passive income. Guess what? That's residual too.
If you have a small business or are self-employed, even if you are making a lot of money, this is NOT passive income. If you receive a salary from your business, that is earned income. There is a way to turn this into passive income, however - so stay tuned.
You know, I have to say that starting your own website cannot be passive income. Whether you are selling a product (such as an eBook, seminar or other information) or a service, you still have to market your website. You will have to do this regardless of whether you are selling your OWN products or have the rights to sell other's products. Marketing your website is work, simple as that. But it's not a job. And once your marketing efforts start taking off, you can make a lot of money with little additional effort. But that is residual in my book, not passive.
What Passive Income IS
Passive income is a lot of things. The first thing that comes to mind, and also, I believe, the most popular example is real estate. If you own investment property and are getting a positive cash flow from a house, commercial property, or apartment, that is passive income. If you rent rooms in your house, that's passive income too. You only have to set this up once, and then the income comes in month after month. Interest income from savings accounts, CDs, and money-market accounts are passive - the bank pays you for keeping your money in those accounts. If you have a website with banner ads or Google Adsense ads, that can be called passive as well.
If you invest in any business, but don't manage it, your profits are considered passive income, exactly what Webster was thinking about when he wrote the definition.
What about business? Well, that depends on how you set it up. Rich people create businesses and set up a system that the business follows. That way, if the owner goes on vacation for a month to Fiji, the employees follow the system and the owner still gets the profits. Any business will of course start out with a lot of work, but if you take the time to set up a business so that it gets reproducible results (exactly like a franchise), those profits become passive. And, according to the IRS, any salary you get from your business is considered "earned" but profits are considered "passive". It is vital when starting a business to check with an accountant and an attorney to set up your business that financially benefits you the best.
What else can be considered passive income? How about self-storage facilities, parking garages/lots and dry cleaners! They all require some time to start up, but once they are set up, you collect money over and over again.
Residual vs Passive Income
Residual and passive income are like siblings. They are both very similar and most people really consider them synonyms. What does it matter, anyway? They are both excellent ways to get money in your hands month after month after month without trading your time or your freedom. How can it get better than that?
Reality Check
Beware of anyone that tells you that there is NO work involved in passive income. Passive income does not mean no work! If you are going to invest in a business, a stock, or a real estate property, you will have to do your research (this is called "due diligence"). Research is work! You will also be required to manage your investments, to check up on their progress and make changes as necessary. That's work too!
The good news is that research and management is only a part-time endeavor. And most of the time, that work can be done from almost anywhere, including on a beach in Fiji.
Let us not forget the FUN factor. I'm sure there are some of you reading this who like, even love their jobs (if you still have one). Some of you have your own business - and congrats to you! But most of us are in jobs just because we need to feed our families and pay the bills. Looking into passive income streams and investing your time and money can bring you many, many returns. Researching for and implementing your passive income plans so that you can live your dreams is FUN. Getting money every month, week, or even every day is FUN. And trying out new strategies and managing your money - when you have some to manage - is FUN.
I hope I've done my job and given you the passive income basics. If you have any questions or thoughts, feel free to contact me through my website. I'd love to hear from you!
A. Annika Smith is the of "Room 4 Rent: How To Turn Your Extra Rooms Into Extra Money!", the only real estate book of it’s kind. She helps others quickly earn passive income by renting out rooms with little money to start so that they can save their home or realize their dreams. Check out free content at her website at http://cluestocash.rentrooms4cash.info.
Article Source: http://EzineArticles.com/?expert=A._Annika_Smith
Article Source: http://EzineArticles.com/198127
If you search the internet for "passive income", you may find a definition or two, but mostly, what you find are websites trying to sell you on the passive-income-flavor-of-the-day. It's frustrating, I know. I don't know about you, but before I jump into any opportunity or even before I take a trip, I like to do my research. That being said, there are a lot of good opportunities out there. But before you start spending money, let's discuss what passive income is and, most importantly, what it isn't.
Webster's dictionary defines passive income as "of, relating to, or being business activity in which the investor does not have immediate control over income". I don't think that tells the whole story. Passive income is money that you receive over and over again without having to do much work (notice I didn't say "any work"). It is different than earned income in that you are not receiving money for your time (like you would a job). But depending on the passive income stream that you choose, you may in fact have immediate control over your income. But I'll get to that later.
Why would you want passive income? Well, like Robert Kiyosaki explains in his book Rich Dad Poor Dad, that is the main difference between the rich and the middle class. The rich invest their money in various passive income streams. When their passive income exceeds their expenses, then they are financially free. "Financially free" simply means that you do not have to have a day job to pay your expenses. And you are "free" to then do whatever you want!
What Passive Income Isn't
Before I go into telling you what passive income is, let me first tell you want it isn't. Passive income is not the same thing as "residual income". Residual income is money that you receive on a regular basis after having done work once. The best example would be TV sitcoms. Some actors get "residuals". Actors get paid for filming the show. Afterwards, some actors get paid each time the show repeats. Sales people that sell services, subscriptions, or renewable products (like insurance) sell that item once and, providing the customer renews, will get a commission off of each renewal. Royalties from the sale of books and music are also residual.
Many say that multi-level-marketing or network marketing sales provide you with passive income. Guess what? That's residual too.
If you have a small business or are self-employed, even if you are making a lot of money, this is NOT passive income. If you receive a salary from your business, that is earned income. There is a way to turn this into passive income, however - so stay tuned.
You know, I have to say that starting your own website cannot be passive income. Whether you are selling a product (such as an eBook, seminar or other information) or a service, you still have to market your website. You will have to do this regardless of whether you are selling your OWN products or have the rights to sell other's products. Marketing your website is work, simple as that. But it's not a job. And once your marketing efforts start taking off, you can make a lot of money with little additional effort. But that is residual in my book, not passive.
What Passive Income IS
Passive income is a lot of things. The first thing that comes to mind, and also, I believe, the most popular example is real estate. If you own investment property and are getting a positive cash flow from a house, commercial property, or apartment, that is passive income. If you rent rooms in your house, that's passive income too. You only have to set this up once, and then the income comes in month after month. Interest income from savings accounts, CDs, and money-market accounts are passive - the bank pays you for keeping your money in those accounts. If you have a website with banner ads or Google Adsense ads, that can be called passive as well.
If you invest in any business, but don't manage it, your profits are considered passive income, exactly what Webster was thinking about when he wrote the definition.
What about business? Well, that depends on how you set it up. Rich people create businesses and set up a system that the business follows. That way, if the owner goes on vacation for a month to Fiji, the employees follow the system and the owner still gets the profits. Any business will of course start out with a lot of work, but if you take the time to set up a business so that it gets reproducible results (exactly like a franchise), those profits become passive. And, according to the IRS, any salary you get from your business is considered "earned" but profits are considered "passive". It is vital when starting a business to check with an accountant and an attorney to set up your business that financially benefits you the best.
What else can be considered passive income? How about self-storage facilities, parking garages/lots and dry cleaners! They all require some time to start up, but once they are set up, you collect money over and over again.
Residual vs Passive Income
Residual and passive income are like siblings. They are both very similar and most people really consider them synonyms. What does it matter, anyway? They are both excellent ways to get money in your hands month after month after month without trading your time or your freedom. How can it get better than that?
Reality Check
Beware of anyone that tells you that there is NO work involved in passive income. Passive income does not mean no work! If you are going to invest in a business, a stock, or a real estate property, you will have to do your research (this is called "due diligence"). Research is work! You will also be required to manage your investments, to check up on their progress and make changes as necessary. That's work too!
The good news is that research and management is only a part-time endeavor. And most of the time, that work can be done from almost anywhere, including on a beach in Fiji.
Let us not forget the FUN factor. I'm sure there are some of you reading this who like, even love their jobs (if you still have one). Some of you have your own business - and congrats to you! But most of us are in jobs just because we need to feed our families and pay the bills. Looking into passive income streams and investing your time and money can bring you many, many returns. Researching for and implementing your passive income plans so that you can live your dreams is FUN. Getting money every month, week, or even every day is FUN. And trying out new strategies and managing your money - when you have some to manage - is FUN.
I hope I've done my job and given you the passive income basics. If you have any questions or thoughts, feel free to contact me through my website. I'd love to hear from you!
A. Annika Smith is the of "Room 4 Rent: How To Turn Your Extra Rooms Into Extra Money!", the only real estate book of it’s kind. She helps others quickly earn passive income by renting out rooms with little money to start so that they can save their home or realize their dreams. Check out free content at her website at http://cluestocash.rentrooms4cash.info.
Article Source: http://EzineArticles.com/?expert=A._Annika_Smith
Article Source: http://EzineArticles.com/198127
Investments and Tracking Your Return on Investments
by Fauzi Zamir
Every investor should know how well their investments are performing. One way to evaluate performance is to calculate your return on investment (ROI) and compare it to a market index. The problem is that most financial institutions do not provide personal rates of return (ROI) on their Statements and doing the calculations yourself is not easy, particularly when you have contributions or withdrawals during a period.
Why is tracking your ROI important? Let's use an analogy. You know how much you make. You also probably know if your salary is comparable to people with similar jobs. Knowing these facts i.e. having a reference point to compare your own salary to others lets you determine if you are being fairly compensated. In the same way, it is equally important for you to know not only what all your investments are worth but also what returns they have earned and how those returns compare with a benchmark such as a market index (the Dow, S&P 500 etc.)
What is ROI? In its simplest form it is the rate of return earned on an investment. For example, if you put $1,000 in a bank account and you earned $50 of interest by the end of the year, your ROI would be 5%. The calculation gets more complex when:
You have multiple portfolios at different financial institutions and you want to calculate individual portfolio returns or a rate of return for all your portfolios on a combined basis.
You have made contributions or withdrawals during the calculation period which then have to be weighted for accurate return calculations.
You don't have access to Index rates of returns for comparison purposes.
How do you determine how well your investments are performing? You need to consider three factors as follows:
Amount Invested
If you invested $100,000 and earned $1,000, your ROI is 1%.
But if you invested $10,000 and still earned $1,000, your ROI is 10%.
Time Period
If you invested $100,000 and earned $1,000 after 5 years, your ROI is 0.2%.
But if you invested $100,000 and earned $1,000 after one year, your ROI is 10%.
Comparable Return
If your investments earned 10% but a comparable market index such as the S&P 500 return was 18% you didn't do as well as the market in general.
Similarly if your investments earned only 4% but the market return was 2%, you did well.
Knowing how well your investments have performed relative to the market over a long period of time is a key step in managing your investments in an intelligent manner. Empowered with this information you can evaluate whether you need to make changes and maximize your returns relative to the risk you are comfortable with.
Fauzi Zamir is a chartered accountant and founder of Solutionera Inc. which has developed a web-site that allows investors to easily track, calculate and compare their ROIs against market indexes without having to do the complex mathematical calculations. You can visit the site at: whatismyroi
Article Source: http://EzineArticles.com/?expert=Fauzi_Zamir
Article Source: http://EzineArticles.com/79195
Every investor should know how well their investments are performing. One way to evaluate performance is to calculate your return on investment (ROI) and compare it to a market index. The problem is that most financial institutions do not provide personal rates of return (ROI) on their Statements and doing the calculations yourself is not easy, particularly when you have contributions or withdrawals during a period.
Why is tracking your ROI important? Let's use an analogy. You know how much you make. You also probably know if your salary is comparable to people with similar jobs. Knowing these facts i.e. having a reference point to compare your own salary to others lets you determine if you are being fairly compensated. In the same way, it is equally important for you to know not only what all your investments are worth but also what returns they have earned and how those returns compare with a benchmark such as a market index (the Dow, S&P 500 etc.)
What is ROI? In its simplest form it is the rate of return earned on an investment. For example, if you put $1,000 in a bank account and you earned $50 of interest by the end of the year, your ROI would be 5%. The calculation gets more complex when:
You have multiple portfolios at different financial institutions and you want to calculate individual portfolio returns or a rate of return for all your portfolios on a combined basis.
You have made contributions or withdrawals during the calculation period which then have to be weighted for accurate return calculations.
You don't have access to Index rates of returns for comparison purposes.
How do you determine how well your investments are performing? You need to consider three factors as follows:
Amount Invested
If you invested $100,000 and earned $1,000, your ROI is 1%.
But if you invested $10,000 and still earned $1,000, your ROI is 10%.
Time Period
If you invested $100,000 and earned $1,000 after 5 years, your ROI is 0.2%.
But if you invested $100,000 and earned $1,000 after one year, your ROI is 10%.
Comparable Return
If your investments earned 10% but a comparable market index such as the S&P 500 return was 18% you didn't do as well as the market in general.
Similarly if your investments earned only 4% but the market return was 2%, you did well.
Knowing how well your investments have performed relative to the market over a long period of time is a key step in managing your investments in an intelligent manner. Empowered with this information you can evaluate whether you need to make changes and maximize your returns relative to the risk you are comfortable with.
Fauzi Zamir is a chartered accountant and founder of Solutionera Inc. which has developed a web-site that allows investors to easily track, calculate and compare their ROIs against market indexes without having to do the complex mathematical calculations. You can visit the site at: whatismyroi
Article Source: http://EzineArticles.com/?expert=Fauzi_Zamir
Article Source: http://EzineArticles.com/79195
Passive Income Streams - The Master Key to Wealth Creation and Financial Freedom?
by Keelan Cunningham
One of the keys to getting rich and creating wealth is to understand the different ways in which income can be generated. It's often said that the lower and middle-class work for money whilst the rich have money work for them. The key to wealth creation lies within this simple statement.
Imagine, rather than you working for money that you instead made every dollar work for you 40hrs a week. Better still, imagine each and every dollar working for you 24/7 i.e. 168hrs/week. Figuring out the best ways you can make money work for you is an important step on the road to wealth creation.
In the US, the Internal Revenue Service (IRS) government agency responsible for tax collection and enforcement, categorizes income into three broad types: active (earned) income, passive income, and portfolio income. Any money you ever make (other than maybe winning the lottery or receiving an inheritance) will fall into one of these income categories. In order to understand how to become rich and create wealth it's vital that you know how to generate multiple streams of passive income.
Crossing the Chasm
Passive income is income generated from a trade or business, which does not require the earner to participate. It is often investment income (i.e. income that is not obtained through working) but not exclusively. The central tenet of this type of income is that it can expect to continue whether you continue working or not. As you near retirement you are most definitely seeking to replace earned income with passive, unearned income. The secret to wealth creation earlier on in life is passive income; positive cash-flow generated by assets that you control or own.
One of the reasons people find it difficult to make the leap from earned income to more passive sources of income is that the entire education system is actually pretty much designed to teach us to do a job and hence rely largely on earned income. This works for governments as this kind of income generates large volumes of tax but will not work for you if you're focus is on how to become rich and wealth building. However, to become rich and create wealth you will be required to cross the chasm from relying on earned income only.
Real Estate & Business - Sources of Passive Income
The passive type of income is not dependent on your time. It is dependent on the asset and the management of that asset. Passive income requires leveraging of other peoples time and money. For example, you could purchase a rental property for $100,000 using a 30% down-payment and borrow 70% from the bank. Assuming this property generates a 6% Net Yield (Gross Yield minus all Operational Costs such as insurance, maintenance, property taxes, management fees etc) you would generate a net rental yield of $6,000/annum or $500/month. Now, subtract the cost of the mortgage repayments of say $300/month from this and we arrive at a net rental income of $200 from this. This is $200 passive income you didn't have to trade your time for.
Business can be a source of passive income. Many entrepreneurs start out in business with the idea of starting a business so as to sell their stake for some millions in say 5 years time. This dream will only become a reality if you, the entrepreneur, can make yourself replaceable so that the business's future income generation is not dependent on you. If you can do this than in a way you have created a source of passive income. For a business, to become a true source of passive income it requires the right kind of systems and the right kind of people (other than you) operating those systems.
Finally, since passive income generating assets are usually actively controlled by you the owner (e.g. a rental property or a business), you have a say in the day-to-day operations of the asset which can positively impact the level of income generated.
Passive Income - A Misnomer?
In some way, passive income is a misnomer as there is nothing truly passive about being responsible for a group of assets generating income. Whether it's a property portfolio or a business you own and control, it is rarely if ever truly passive. It will require you to be involved at some level in the management of the asset. However, it's passive in the sense that it does not require your day-to-day direct involvement (or at least it shouldn't anyway!)
To become wealthy, consider building leveraged/passive income by growing the size and level of your network instead of simply growing your skills/expertise. So-called smart folks may spend their time collecting diplomas and certificates but wealthy folk spend their time collecting business cards and building relationships!
Residual Income = A Form of Passive Income
Residual Incomeis a form of passive income. The terms Passive Income and Residual Income are often used interchangeably; however, there is a subtle yet important difference between the two. It is income that is generated from time to time from work done once i.e. recurring payments that you receive long after the initial product/sale is made. Residual income is usually in specific amounts and paid at regular intervals. Some example of residual income include:-
- Royalties/earnings from the publishing of a book.
- Renewal commissions on financial products paid to a financial advisor.
- Rentals from a property letting.
- Revenue generated in multi level marketing networks.
Use of Other People's Resources and Other People's Money
Use of Other People's Resources and Other People's Money are key ingredient required to generate passive income. Other People's Money buys you time (a key limiting factor of earned income in wealth creation). In a sense, use of other people's resources gives you back your time. When it comes to raising capital, businesses that generate passive income usually attracts the largest amount of Other People's Money. This is because it is generally possible to closely approximate the return (or at least the risk) you can expect from passive investments and so banks etc., will often fund passive investment opportunities. A good business plan backed by strong management will usually attract angel investors or venture capital money. And real estate can often be acquired with a small down payment (20% or less in some cases) with the majority of the money borrowed from a bank typically.
Tax Benefits of Passive Income
Passive income investments often allow for the most favorable tax treatment if structured correctly. For example, corporations can use their profits to invest in other passive investments (real estate, for example), and avail of tax deductions in the process. And real estate can be "traded" for larger real estate, with taxes deferred indefinitely. The tax paid on passive income will vary based on the individual's personal tax bracket and corporate structures utilized. However, for the purposes of illustration we could say that an average of 20% effective tax on passive investments would be a reasonable assumption.
In summary:
For good reason, passive income is often considered to be the holy grail of investing, and the key to long-term wealth creation and wealth protection. The major benefit of passive income is that it is recurring income, typically generated month after month without a great deal of effort by you. Building wealth and becoming rich shouldn't be about extracting every last bit of your own energy, your own resources and your own money as there is always a limit to the extent you can do this. Tapping into the effective generation and use of passive income is a critical step on the road to wealth creation. Begin this part of you wealth creation journey as early as is humanly possible i.e. now!
P.S. Visit MillionaireMindsetSecrets.com and sign-up for FREE insights, tips and exclusives on Passive Income Streams - utilizing our powerful income and wealth creation strategies can fast-track your wealth building so that you get rich for life and build wealth that lasts.
P.P.S. Why not signup NOW for more insider secrets on Passive Income Streams at MillionaireMindsetSecrets.com for FREE & download for free the "The 7 Secrets of Wealth Creation" e-book.
Article Source: http://EzineArticles.com/?expert=Keelan_Cunningham
Article Source: http://EzineArticles.com/5761748
One of the keys to getting rich and creating wealth is to understand the different ways in which income can be generated. It's often said that the lower and middle-class work for money whilst the rich have money work for them. The key to wealth creation lies within this simple statement.
Imagine, rather than you working for money that you instead made every dollar work for you 40hrs a week. Better still, imagine each and every dollar working for you 24/7 i.e. 168hrs/week. Figuring out the best ways you can make money work for you is an important step on the road to wealth creation.
In the US, the Internal Revenue Service (IRS) government agency responsible for tax collection and enforcement, categorizes income into three broad types: active (earned) income, passive income, and portfolio income. Any money you ever make (other than maybe winning the lottery or receiving an inheritance) will fall into one of these income categories. In order to understand how to become rich and create wealth it's vital that you know how to generate multiple streams of passive income.
Crossing the Chasm
Passive income is income generated from a trade or business, which does not require the earner to participate. It is often investment income (i.e. income that is not obtained through working) but not exclusively. The central tenet of this type of income is that it can expect to continue whether you continue working or not. As you near retirement you are most definitely seeking to replace earned income with passive, unearned income. The secret to wealth creation earlier on in life is passive income; positive cash-flow generated by assets that you control or own.
One of the reasons people find it difficult to make the leap from earned income to more passive sources of income is that the entire education system is actually pretty much designed to teach us to do a job and hence rely largely on earned income. This works for governments as this kind of income generates large volumes of tax but will not work for you if you're focus is on how to become rich and wealth building. However, to become rich and create wealth you will be required to cross the chasm from relying on earned income only.
Real Estate & Business - Sources of Passive Income
The passive type of income is not dependent on your time. It is dependent on the asset and the management of that asset. Passive income requires leveraging of other peoples time and money. For example, you could purchase a rental property for $100,000 using a 30% down-payment and borrow 70% from the bank. Assuming this property generates a 6% Net Yield (Gross Yield minus all Operational Costs such as insurance, maintenance, property taxes, management fees etc) you would generate a net rental yield of $6,000/annum or $500/month. Now, subtract the cost of the mortgage repayments of say $300/month from this and we arrive at a net rental income of $200 from this. This is $200 passive income you didn't have to trade your time for.
Business can be a source of passive income. Many entrepreneurs start out in business with the idea of starting a business so as to sell their stake for some millions in say 5 years time. This dream will only become a reality if you, the entrepreneur, can make yourself replaceable so that the business's future income generation is not dependent on you. If you can do this than in a way you have created a source of passive income. For a business, to become a true source of passive income it requires the right kind of systems and the right kind of people (other than you) operating those systems.
Finally, since passive income generating assets are usually actively controlled by you the owner (e.g. a rental property or a business), you have a say in the day-to-day operations of the asset which can positively impact the level of income generated.
Passive Income - A Misnomer?
In some way, passive income is a misnomer as there is nothing truly passive about being responsible for a group of assets generating income. Whether it's a property portfolio or a business you own and control, it is rarely if ever truly passive. It will require you to be involved at some level in the management of the asset. However, it's passive in the sense that it does not require your day-to-day direct involvement (or at least it shouldn't anyway!)
To become wealthy, consider building leveraged/passive income by growing the size and level of your network instead of simply growing your skills/expertise. So-called smart folks may spend their time collecting diplomas and certificates but wealthy folk spend their time collecting business cards and building relationships!
Residual Income = A Form of Passive Income
Residual Incomeis a form of passive income. The terms Passive Income and Residual Income are often used interchangeably; however, there is a subtle yet important difference between the two. It is income that is generated from time to time from work done once i.e. recurring payments that you receive long after the initial product/sale is made. Residual income is usually in specific amounts and paid at regular intervals. Some example of residual income include:-
- Royalties/earnings from the publishing of a book.
- Renewal commissions on financial products paid to a financial advisor.
- Rentals from a property letting.
- Revenue generated in multi level marketing networks.
Use of Other People's Resources and Other People's Money
Use of Other People's Resources and Other People's Money are key ingredient required to generate passive income. Other People's Money buys you time (a key limiting factor of earned income in wealth creation). In a sense, use of other people's resources gives you back your time. When it comes to raising capital, businesses that generate passive income usually attracts the largest amount of Other People's Money. This is because it is generally possible to closely approximate the return (or at least the risk) you can expect from passive investments and so banks etc., will often fund passive investment opportunities. A good business plan backed by strong management will usually attract angel investors or venture capital money. And real estate can often be acquired with a small down payment (20% or less in some cases) with the majority of the money borrowed from a bank typically.
Tax Benefits of Passive Income
Passive income investments often allow for the most favorable tax treatment if structured correctly. For example, corporations can use their profits to invest in other passive investments (real estate, for example), and avail of tax deductions in the process. And real estate can be "traded" for larger real estate, with taxes deferred indefinitely. The tax paid on passive income will vary based on the individual's personal tax bracket and corporate structures utilized. However, for the purposes of illustration we could say that an average of 20% effective tax on passive investments would be a reasonable assumption.
In summary:
For good reason, passive income is often considered to be the holy grail of investing, and the key to long-term wealth creation and wealth protection. The major benefit of passive income is that it is recurring income, typically generated month after month without a great deal of effort by you. Building wealth and becoming rich shouldn't be about extracting every last bit of your own energy, your own resources and your own money as there is always a limit to the extent you can do this. Tapping into the effective generation and use of passive income is a critical step on the road to wealth creation. Begin this part of you wealth creation journey as early as is humanly possible i.e. now!
P.S. Visit MillionaireMindsetSecrets.com and sign-up for FREE insights, tips and exclusives on Passive Income Streams - utilizing our powerful income and wealth creation strategies can fast-track your wealth building so that you get rich for life and build wealth that lasts.
P.P.S. Why not signup NOW for more insider secrets on Passive Income Streams at MillionaireMindsetSecrets.com for FREE & download for free the "The 7 Secrets of Wealth Creation" e-book.
Article Source: http://EzineArticles.com/?expert=Keelan_Cunningham
Article Source: http://EzineArticles.com/5761748
Passive Income? - Look at Your Passive Expenses First
by Mike Leonard
Do a search for the term 'second income online' and you will be hit with a hundred and one articles and stories about how someone makes $1000 a day in their spare time. More interestingly you will notice that the buzzword that is thrown around a lot is 'Passive income'. Passive income has become the holy grail of the second income prophets. They talk about it in hushed tones. It almost has a reverential quality. Create a passive income and become financially free is their tagline.
If only it was as simple as some of these articles make out. Many times the authors of these articles are trying to sell you something. Some piece of software that will automate your selling or investing. Either way they are trying to make their 'Passive Income' by selling the idea of 'Passive Income' to you. In the end it resembles something like a pyramid. Person one at the top sells the idea of passive income to two people those two people sell the idea of passive income to another four people. This continues until eventually you have a couple of thousand of people all trying to create passive income by selling passive income tools.
I know about this because I've tried to create passive income in the past but with limited success. Generally I end up working very hard for the so called 'passive income' that I do generate. Passive income in itself is supposed to be self perpetuating by its very nature. Once you set up a passive income system it is suppose to carry on by itself using its own momentum.
So where does that leave you? You're in debt or maybe not but either way you want a piece of this 'Passive Income'. Well to begin with if you are truly going to go after passive income you are going to need a lot of time. Time is the one of the key elements.
Lets be honest most of us don't have the time or energy to create a second income. I know I hadn't. I was so busy doing nothing (well nothing important) that I made excuses and couldn't get anything done. The few times I did get start passive income projects they invariably died a quiet death never to be mentioned again.
So what's the alternative? It's a lot closer to home than you think.
Passive expenses - the mirror image of passive income
No one ever really talks about passive expenses. Or certainly no one talks about them in the context of your personal finances. To illustrate what I mean about passive expenses take the example of gym membership. Say you have membership of the local gym that costs you $80 a month and is paid by direct debt. This $80 will be taken from your account every single month regardless of whether you are in the gym every day or whether you haven't seen the inside of the gym since January 2nd. The point is that the expense is passive you don't have to physically go out and buy anything for it to occur. You signed up once and now you pay via direct debt every month.
Now as an alternative to generating a passive income a simple solution would be to eliminate as much of you passive expenses as possible. The net result is the same. If you manage to eliminate $100 worth of passive expenses each month then that is still $100 staying in your account and not going anywhere. It means that you don't have to invest time and energy into generating a passive income of $100.
Here is a list of some of the typical passive expenses
Phone bill
Have a look around for a cheaper provider. There are always better deals to be had.
Electricity bill
Look for ways that you can permanently reduce your electricity bills. For example use energy saving bulbs. They may cost more initially but they will save you money in the long and there are more environmentally friendly. You'll need to get creative while at the same time trying not compromise your standard of living.
Magazine subscriptions
Do you really need these subscriptions? Can't you just check the magazine out in the store, see if there is anything interesting in it and then buy it if there is but don't buy it if there is nothing that interests you in it.
Gym memberships
Be honest, how many times have you gone to the gym in the last three months? Is there anything that you do in the gym that you cannot do outside the gym? Things like going for a run, cycling etc.
Insurance
Shop around for the best offer. Usually if you go with one company for your home and car insurance then they will give you a discount. Keep looking!
Website memberships
As with magazine subscriptions - do you really need the membership? Most of the information contained in the website is probably available for free on the web somewhere else. It just takes a bit of searching.
Cable TV
Do really need those 200 TV channels? When was the last time you really watched anything on channels 50 to 200?
Rent/mortgage
If you have a mortgage, then shop around for a better deal. There are some good deals still on offer but it will depend on your individual situation. With rent maybe it is possible to rent a place for $100 cheaper a little further away from your current place? It might be worth a look. That extra $100 would go a long way.
Banking fees/credit card fees
Again shop around. Change banks if you have to. A lot of these fees can be reduced or eliminated.
The list above is only a sample of the passive expenses that people incur every month. There are other things that you could probably identify in your own situation that could be classified as a passive expense.
If you are determined to generate a second income then may I suggest that before you start that you tackle your passive expenses first. You are better off, initially at least, spending time and energy reducing your passive expenses. That way you can be sure that any additional income you earn will be adding to your bottom line and not to go to pay passive expenses.
It could be the case that in some situations if you reduce your passive expenses enough that the need for a second income could be eliminated. You may not need to take a second job or start a side business in your spare time.
Article by Mike Leonard. To read more articles by Mike please visit his website http://www.untildebtdouspart.com - this website contains articles on debt management, free financial calculators and a free ebook relating to Personal finance and particularly debt management.
Article Source: http://EzineArticles.com/?expert=Mike_Leonard
Article Source: http://EzineArticles.com/1439945
Do a search for the term 'second income online' and you will be hit with a hundred and one articles and stories about how someone makes $1000 a day in their spare time. More interestingly you will notice that the buzzword that is thrown around a lot is 'Passive income'. Passive income has become the holy grail of the second income prophets. They talk about it in hushed tones. It almost has a reverential quality. Create a passive income and become financially free is their tagline.
If only it was as simple as some of these articles make out. Many times the authors of these articles are trying to sell you something. Some piece of software that will automate your selling or investing. Either way they are trying to make their 'Passive Income' by selling the idea of 'Passive Income' to you. In the end it resembles something like a pyramid. Person one at the top sells the idea of passive income to two people those two people sell the idea of passive income to another four people. This continues until eventually you have a couple of thousand of people all trying to create passive income by selling passive income tools.
I know about this because I've tried to create passive income in the past but with limited success. Generally I end up working very hard for the so called 'passive income' that I do generate. Passive income in itself is supposed to be self perpetuating by its very nature. Once you set up a passive income system it is suppose to carry on by itself using its own momentum.
So where does that leave you? You're in debt or maybe not but either way you want a piece of this 'Passive Income'. Well to begin with if you are truly going to go after passive income you are going to need a lot of time. Time is the one of the key elements.
Lets be honest most of us don't have the time or energy to create a second income. I know I hadn't. I was so busy doing nothing (well nothing important) that I made excuses and couldn't get anything done. The few times I did get start passive income projects they invariably died a quiet death never to be mentioned again.
So what's the alternative? It's a lot closer to home than you think.
Passive expenses - the mirror image of passive income
No one ever really talks about passive expenses. Or certainly no one talks about them in the context of your personal finances. To illustrate what I mean about passive expenses take the example of gym membership. Say you have membership of the local gym that costs you $80 a month and is paid by direct debt. This $80 will be taken from your account every single month regardless of whether you are in the gym every day or whether you haven't seen the inside of the gym since January 2nd. The point is that the expense is passive you don't have to physically go out and buy anything for it to occur. You signed up once and now you pay via direct debt every month.
Now as an alternative to generating a passive income a simple solution would be to eliminate as much of you passive expenses as possible. The net result is the same. If you manage to eliminate $100 worth of passive expenses each month then that is still $100 staying in your account and not going anywhere. It means that you don't have to invest time and energy into generating a passive income of $100.
Here is a list of some of the typical passive expenses
Phone bill
Have a look around for a cheaper provider. There are always better deals to be had.
Electricity bill
Look for ways that you can permanently reduce your electricity bills. For example use energy saving bulbs. They may cost more initially but they will save you money in the long and there are more environmentally friendly. You'll need to get creative while at the same time trying not compromise your standard of living.
Magazine subscriptions
Do you really need these subscriptions? Can't you just check the magazine out in the store, see if there is anything interesting in it and then buy it if there is but don't buy it if there is nothing that interests you in it.
Gym memberships
Be honest, how many times have you gone to the gym in the last three months? Is there anything that you do in the gym that you cannot do outside the gym? Things like going for a run, cycling etc.
Insurance
Shop around for the best offer. Usually if you go with one company for your home and car insurance then they will give you a discount. Keep looking!
Website memberships
As with magazine subscriptions - do you really need the membership? Most of the information contained in the website is probably available for free on the web somewhere else. It just takes a bit of searching.
Cable TV
Do really need those 200 TV channels? When was the last time you really watched anything on channels 50 to 200?
Rent/mortgage
If you have a mortgage, then shop around for a better deal. There are some good deals still on offer but it will depend on your individual situation. With rent maybe it is possible to rent a place for $100 cheaper a little further away from your current place? It might be worth a look. That extra $100 would go a long way.
Banking fees/credit card fees
Again shop around. Change banks if you have to. A lot of these fees can be reduced or eliminated.
The list above is only a sample of the passive expenses that people incur every month. There are other things that you could probably identify in your own situation that could be classified as a passive expense.
If you are determined to generate a second income then may I suggest that before you start that you tackle your passive expenses first. You are better off, initially at least, spending time and energy reducing your passive expenses. That way you can be sure that any additional income you earn will be adding to your bottom line and not to go to pay passive expenses.
It could be the case that in some situations if you reduce your passive expenses enough that the need for a second income could be eliminated. You may not need to take a second job or start a side business in your spare time.
Article by Mike Leonard. To read more articles by Mike please visit his website http://www.untildebtdouspart.com - this website contains articles on debt management, free financial calculators and a free ebook relating to Personal finance and particularly debt management.
Article Source: http://EzineArticles.com/?expert=Mike_Leonard
Article Source: http://EzineArticles.com/1439945
Subscribe to:
Posts (Atom)