Monday, May 3, 2010

Is there really a money tree? Delving into passive income

Seeing the automatic payroll deposit show up in your checking account every month is always a good feeling. (Unless, of course, it is late or less than you thought it would be.) Most of us just glance at it and use it to pay bills, save for a big purchase, or maybe even pay down our house. How long, if ever, do you think about what you did to earn that money? Did you work long or extra hours on a big project? Did you spend half you time at work looking at Facebook or checking your fantasy football team?  Did you have to sit in the lunch room and listen to your co-workers' incredibly boring weekends?  Many times our salary doesn't accurately reflect our contributions to or employer, for better or for worse. This is our active income.

Active income is how 90% or more of us get the majority of our income. There is another way to accumulate a substantial amount of earnings though. It is called a money tree, of course.  Did you know that your parents were actually holding out on you when they told you money doesn't grow on trees?  Well maybe not exactly, but there are people out there that would tell you that you really can plant a money tree.

It's called passive income.  Passive income is income that requires little or no effort to maintain.  (just like a fully grown money tree) Examples are income from rental property or dividend from a securities (stocks, bonds, etc) holding. Passive income tends to be a regular occurrence (see above examples) and can be relatively easy to maintain. Certainly this is not necessarily a recipe for easy or quick money. It can take a significant amount of work or research to produce passive income on the front end. This can include looking for rental property or researching companies in which to invest.

Passive income is often touted as a mean to financial independence or an early retirement and thus is often associated with "get rich quick schemes" or late night infomercials.  You've seen the one with the guy in the cheesy suit standing in front of a mansion about to get into a convertible with two lovely ladies.  It certainly is true that some have made fortunes through real estate or smart (maybe lucky) investment in the stock market. That is not why I want to address this issue.  I'm not necessarily going out and reading The Millionaire Mind or Rich Dad, Poor Dad.  I just want to encourage you to think about it.  You may love your job and wouldn't want to stop working to pursue passive income or an early retirement. That is a great situation to be in. My question is where does passive income fit in your life? Do you currently have any? How could the pursuit of this type of income affect your life? The choice to pursue passive income should be considered first and foremost as a supplement to your current active income, not as an easy way to quit your job and makes millions in a few months.  (This doesn't happen very often.)

If any of this piques your interest do some of your own research, but do your self a favor and stay away from resources that claim you can make quick money with little effort.  Then again, maybe you'll end up in a cheesy suit on late night TV.

1 comment:

  1. I need to know specifics on how to make passive income...please explain

    ReplyDelete