Passive Income: What is it?

is income that is paid over a long period of time for doing the initial work one time. Passive income can be created in many ways such as real estate, getting paid interest, and by creating businesses that will pay out over a long period of time without having to put in daily or consistent work.

This sounds nice, doesn’t it?  Income that pays dividends for an investment of time and or money is the goal when setting up a business.  Especially if you are working toward creating wealth.

In this article, we are going to look at what passive income is.  There are many types of passive income streams that we will not discuss on this article.  After reading this article you will be able to see the benefits of passive and how it is the best business model to create wealth.

Three Key Ingredients to Wealth

Before we get into talking about what passive income is, it is important to come up with a working definition of what wealth is.  You might define wealthy differently than me, but for the purpose, let's agree on some key components of wealth.

After all passive income is the best vehicle for creating wealth.  There are three key components of wealth that must always be present or you haven’t achieved wealth.  

wealth Ingredients

The three components of wealth are freedom, time, and choice.  Notice I did list money. Wealthy is not about having a lot of money as much as it is about freedom, time, and choice.  Don’t get me wrong, money is necessary, but is not the goal of wealth.

I talk to people who say they want a million dollars.  I then ask them what would they do with a million dollars and they say things like, buy a new car, buy a new house, buy clothes, go on a vacation and things like that.  And some people are not sure what they would do if they had a million dollars, they just want it.

While there is nothing wrong with spending your money doing the things I just listed, the question is, what do you do when you run out of money?  You go back to work, resume the you had before you got that million dollars.

Passive Income Creates Wealth

Passive income done right will continue to pay you when you are doing the things you love to do.  Let’s break down the components I mentioned.

Freedom is being able to do what you want when you want.  Imagine wanting to go on a trip and not having to ask your employer if it is ok to take your time and go where you want.  Freedom is being free from being an indentured servant to someone.

Being free means that the money you make is for you and not someone else.  This is not to say that others will not benefit from your business, but your objective is not to make money for a company for a small hourly rate.

Being free can mean so many things. It can mean being free to pay cash and not have to finance your next car or home purchase.  

With this kind of freedom, you are able to set your day and schedule it the way you want to. Your time is your time.  With passive income, you are getting paid for the time that you have invested and it continues to pay you, even when you are sleeping.

Your time is given back to you and the time you choose to give is paid for at a premium through the passive income model.

Imagine going on a vacation when you choose.  When you get there you have the choice to extend your time and stay longer.  Wouldn’t that be amazing?

Passive Income Makes Wealth Possible

The three components of wealth outlined here choice, freedom, and time are interdependent.  If you think about the brief explanation above you can see areas where they are similar. This is because they are and yet still very different.

Here is the thing that is important to not.  If you take away one of the three components you will lose the other two.  

Let’s face it, what makes this possible is money.  But not just any money. You can have a super good paying job and have plenty of money and be employed working for a company 40 plus hours a week.

passive income creates lifestyle

You have the income but you are missing the choice, freedom, and time.  You are exchanging those three elements of wealth for an agreed on price.  Sure you might be saving a nice nest egg, and there is no guarantee you will see tomorrow.  

Depending on where you have that nest egg hidden it could disappear if it is somehow tied to 401K or other types of investment.  The stock market debacle that was tied to the prime lending home loans that went belly up in 2008 robbed millions of Americans of a lot of money, including yours truly.

Yes, the stock market and economy have recovered.  Many people would tell you they have recovered the money they lost.  Have they really? Even if you are back to the point where you were when that happened, you have lost time and income.  In reality, you should have twice as much in your investment as you did before you lost out back then.

Passive income is not dependent on the economy or the stock market.  If the stock market has a bad day and goes down, your passive income stream(s) continue along unaware, unless of course they are somehow tied to the stock market and some who depend on the economy.

What Makes Income Passive

When people ask me what passive income is I often say “it is income you create and do the work one time and then get paid over and over again for a long period of time, even when you are sleeping.”

While this is absolutely true, there is a little more to it that is important to understand.  Passive income takes work, time, and money. It requires these in varying amounts but always requires these ingredients.

You can have a home that you rent.  You don’t have to ever look at it. The only thing you have to do is deposit the check.  You have a property management company to take care of everything. This would be considered passive income.

To get that rental property took money, work, and some doing to get it set up.  It might even have taken some time to pay it off, assuming it is free and clear.  The point is that once this passive income stream is in place you get paid like clockwork.

passive income Is the Way

Real estate is one example of passive income and has a high barrier to entry.  Passive income does not have to be hard to get into. Some passive income streams take more time to set up and less money and some nurturing.  But once they are going they require minimal effort to manage them.

The investment of time and money into passive income does not guarantee that the passivity will last forever.  These income streams often require some type of maintenance. In many cases, this is something you can hire someone to oversee for you whereby making the income stream totally passive.

If you are experiencing the components of the wealth of choice, freedom, and time and this being made possible by the income streams that do not require you to be constantly present, then you have created a passive income stream.

Once you have done it once, go out and create another one.  Don’t put all your eggs in one basket. Income streams can dry up for one reason or another.  If you create many streams of income and have one dry up the impact is not as bad as it would be if it was your only, or major stream of income.

Passive Income Comes in Many Forms

Passive income can be a dividend check you get every month from an investment, or it can be a business you set up that requires some attention and monitoring.

Don’t make the mistake many people make in thinking that passive income is “set it and forget it.”  Like any business, it requires your attention. The amount of attention will vary depending on the business model, but you can’t create it and walk off and forget about it and expect that everything is going fine.

I like passive income streams that I can set up on the internet and deliver digital products or services.  The thing I look for is ways to set up what I call passive income engines that lead people who are interested in the product or service through a process without me having to be present.

Here is one example of such a passive income machine.  It is free to get started. What I like about is that it is automated and cost no money to set up.  There is a monthly fee that is nominal after a free trial period, but this becomes zero out of pocket once it is set up and going.

Check it out here.