Sources of Passive Income

bbb low-cost housing, tegnestuen vandkunstenThe other day, I discussed passive income and what it is. Today’s post will be all about different sources of passive income.

I would love for you all to comment below and tell me what you do for passive income, or what you would like to do. I’m sure everyone is interested, and I definitely am!

Rental Income

Many people get into the rental market as a form of passive income. Depending on how you want to define passive income, rental income may or may not be included as a passive choice. However, for the sake of this post, we will say that rental income is passive.

Right now, we rent a room to my sister. It is definitely a form of passive income for us, as she has not been a bother at all. The money she pays us ($325 per month) has been easy so far.

We are still unsure if we will rent out our current home or sell it when we buy our next house. We are kind of leaning towards selling it. Someone brought up a good point in my post on MSOC in that if we were looking to buy a rental home, we probably wouldn’t buy this one since we could probably make more money from a renting out a cheaper house.

Royalties

If you’ve invented or created something in the past, you might be able to collect royalties from it. Maybe you invented something that everyone has to use, and you then collect royalties from it. Also, maybe you created an awesome song or took great pictures, and others wants to use them also.

Writing

Writing a book can be time-consuming in the beginning, but once you are done, the money could be considered passive income.

You could sell your books through online stores or have others sign up to be your affiliate and they can sell your books for you. I have been thinking about writing an ebook, but right now I am just too busy!

Dividends

Making money by investing in dividend paying stocks is a source of passive income. You can generate income whenever a company pays dividends. This does not only have to be from publicly-traded stocks. You can also invest in closely-held entities which distribute cash. This might be a family company that you don’t work in, or maybe a good investment that you just happened to come across.

In the field that I work in, many, many of my clients make millions a year (each) from closely-held entities that they are just partners in (in which they do absolutely nothing).

What do you do for passive income? Any plans for it in the future?

What is Passive Income

What is Passive IncomePassive income is definitely something that interests me. Before I started blogging, I didn’t really give it much thought. I knew that it existed, but I just always believed that I would be the type of person to work a long time and have to actually put time into every dollar that I make.

Now that I plan on eventually making the leap to self-employment and becoming financially independent, passive income is something that I have been thinking about a lot.

Passive income would allow me to continue doing what I love in the future, just in case something does happen. For me, financial independence and passive income go hand in hand. It brings security and additional forms of income to our family.

We won’t have to be overly-reliant on one form of income.

So what is passive income? Different people have varying opinions on this. Some consider rental income to be passive income, whereas some do not because sometimes renting a home can be a TON of work, with income tax considerations and little pay/return sometimes. However, sometimes renting a home can be minimal work with a decent return. It all just depends on who you are talking to.

Formal definition of Passive Income:

“Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved. As with non-passive income, passive income is usually taxable; however it is often treated differently by the Internal Revenue Service.”

 

Some also consider blogging passive income, but I wouldn’t consider it passive at all! I’m not sure why some people think that… Just because someone has fun with something, does not mean that it is passive income.

For the most part, passive income is making money with little effort on a continual basis.

Something such as dividends would count, because there is only work in the beginning that needs to be done, and just a little maintenance afterwards. Dividends as a part of investment planning can be a great source of passive income.

What is not passive income? 

  1. Blogging. A lot of my time is dedicated towards blogging. I would not consider it minimal effort at all. In some cases, I can see where affiliate income can be considered passive though. If you just throw one post up and you can make thousands off of it, that is a pretty good return.
  2. Side jobs. Extra income does not automatically equal passive income.
  3. Doing what you love. Some consider that if you have fun at your job, then it is passive income. This really shocks me that some people think this!

 

Does passive income play a part in your life? Are you currently working on building it up?

What is Financial Independence?

What is Financial Independence?

I like to put beach pictures all over my blogs…

What is Financial Independence?  This might be something that you are wondering. Different people have different meanings for this. For example, if you are younger, it might just mean financial independence from your parents, in which you start paying things on your own.

However, for me (and for most of the personal finance world), financial independence is the point where I can choose whether or not I want to work, and therefore be able to work on things that I enjoy. I don’t want to feel like I am stuck forever, and having the choice to do what I want to do is important.

The definition from Wikipedia for financial independence:

“the state of having sufficient personal wealth to live, without having to work actively for basic necessities.”

In order to be financially independent, it means that your assets must generate more income than your expenses. So, if you live a pretty frugal lifestyle of lets say $2,000 per month of expenses (food, housing, car, fun, insurance, etc.), then you would want to generate at least this or above in order to live off of passive income. However, if your monthly expenses are much higher and total maybe $7,000 a month, you will need personal finances of at least that in order to be considered financially independent. $7,000 per month would be much more harder to achieve than $2,000 per month.

One thing that will be different on this blog is that I never see myself not working. I always want to do something to take up my time, so I more just want the option to choose what I want to do in life. Maybe one day I will want to pick up and travel for years at a time. When we eventually have children, I would like to be able to spend lots of time with them. The list goes on and on.

Or maybe if I ever want to jump into something completely new that may not make me a whole bunch of money. I want to be diversified so that I can be ready for anything that life throws at me.

I want to be able to pursue work that I love in life, and not feel like I need to sit in an office all day and hate my life.

Financial independence to me is having the CHOICE to do what I want.

Is financial independence one of your goals? How are you diversified?