Passive Income - What is it?

In my last post, I went on and on about passive income, but I really didn't spell out what it was. It is probably pretty clear from that discussion what passive income is, but for some weird reason, I really feel like spelling it out. I guess I just enjoy thinking about.

Passive Income is also called residual income -- and when it comes to income, residual does not mean 'leftovers that nobody wants'.

When you have a job, you work, and then you get paid, and then you have to work again if you want to get paid again. Fair enough.

Residual income, or passive income, on the other hand, is different. With passive income, you work once, and you get paid over and over (and over again).

To most people, this sounds like a mad man's most delirious dream, and they spit at the idea. They say 'everybody know you have to work to make money', and they tell you about an uncle who lost all his money and his best goat on some pyramid scheme.

The thing is, you already know about several ways of making passive income. For example, you know that people rent out houses and appartments. Maybe you're even paying someone right now for the right to stay another month in somebody elses place. Well, that person has created one passive income stream for himself. Or herself. They worked really hard to buy this place, and now, that work is paying them over and over and over. Isn't it beatiful?

Let's take another example. That guy down the street who opened his own shop. Now he struggled for years, but lately, business has been going so well that he has hired someone else to stand in the shop all day. Actually, he also has an accountant, and, come to think of it, some other people as well who are doing most of the work running his shop. He worked like hell, but now that work is paying him over and over, and his money has started working for him.

So there are ways of working "once", and then getting paid over and over (and over again). Hm, that is interesting.

You just think they are not for you.

Maybe you are right. Maybe you are comfortable in your work. You like going there every morning, your colleagues are real nice, your salary is more than sufficient - you even save some every month for your kids' college education and your retirment fond, and still you get to spend money on yourself and your better half.

That guy who opened the shop, on the other hand, he took huge risks. You don't want to take risks like that. You can't just quit your job, you've got mouths to feed, bills to pay. You wouldn't know how to start a shop, and even if you did, what if there where no customers?

I agree. I don't like risk much. Maybe I can risk $20, but I'm not gonna risk my job, my future, anything like that.

So I start small.

Real small.

Just to see if I can find other ways of making money. The passive kind. The kind where I work an hour or two every evening for a couple of weeks, instead of watching CSI (which is a huge sacrifice, I love CSI). And then I see if that work starts paying me once, twice, three times.

Because the hardest part can sometimes be just to find those sort of income streams. What are they? If you've never looked for them before, you've probably never seen them. And so it is really hard to imagine what they will look like. What forms do they take? Will they jump at me in the middle of the night as I am falling to sleep, just as my leg twitches? Or do I have to go looking for them? Where do I look? What will they look like? How will I know of they are real?

This is why we must educate ourselves. You are doing it right now by reading this. I have found some ways that I am going to share with you the following days. And I am out there trying to find more and better ways.

Calling this a journey is a cliche. But hey, we will get somwhere, won't we? And if we get somewhere, we must have been travelling. And if we are travelling, then this is a journey.

Love & green grass,
Sten, Oslo, Dec. 9th 2004