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A Not-So-Passive Look at Passive Income

Jul 10, 2008
Are you tired of working for hours on end everyday for the last so-so years?

Do you want to take some time off from work, yet still earn without doing much?

If you answered yes to these two questions, then passive income is just for you.

If you want to achieve financial freedom while in the comfort of your own home, you will benefit from knowing everything about passive income.

What is passive income?

Here are some fast facts about it.

Passive income is only one of the three basic types of income - active and portfolio being the other two.

Passive income is a type of earning that an individual draws from owning a rental property, engaging in limited partnership, or joining other ventures that does not require his/her active and direct involvement.

Other examples of passive income include: preset web business, interest paid from bank deposits, earnings from real estate and property, royalties from doing creative work, bonus from share holdings, network marketing, and income from marketing digital files, such as software, e-books, scripts, or any service that does not involve merchant involvement.

This type of income does not take account of wages or earnings from participation in business, nor does it comprise interest, dividends, or capital gains.

For tax reasons, it is essential to take note that losses in this type of income usually cannot make up for portfolio or active income.

What are the types of passive income?

Passive income has three types: residual, leveraged, and active leveraged. The third, however, is not exactly passive, but can be a key to more earnings while working less.

Residual income is a type of earning that one gets after a while from doing work at one point.

Here are some examples of residual income:

commission received every year by an insurance agent whenever a client renews his/her policy

royalties being collected by a photographer every time somebody purchases one of his/her images from a clearinghouse

proceeds gained by an aerobics instructor from the sale of a workout video that she produced for members of the gym where she teaches

payments received by a writer who produces an e-book and sells it via the Internet

Leveraged income is a type of earning gained from the effort and labor of other people.

Here are some examples of leveraged income:

a profit margin made by a general contractor on the job completed by subcontractors

income from franchising your business to another entrepreneur

commission received by a network marketer from the sales made by the individuals under him/her

payments received by a writer for the sale of his/her e-book by way of colleagues who promoted the merchandise

Active leveraged income is a term used for the type of earning that requires active participation on your part, but you will be able to make more cash by involving more individuals.

A one-time, big-time event is usually involved here like:

a class, symposium, or seminar

a convention or conference

dance and song recitals and concerts

parties like raves and the like

This kind of endeavor might require direct involvement on your part, but your earning power is higher than if somebody will be paying you for an hourly rate.

You may consider packing an area with a thousand people and having them pay $50 each. In the end, you will be delighted to find out that you were able to pay for the facilities you used and the staff you hired, and still be able to keep a sizable chunk of the proceeds for yourself.

What happens next?

Think about these matters and make sure to apply any of the good ideas in your next business enterprise.
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