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Introduction to Passive Income

By Edited May 12, 2016 2 2

Are you constantly worrying about coming up with enough money to cover your monthly expenses? Maybe you are looking to earn some extra income just to get ahead with your personal finances? Regardless your reasoning for wanting to earn more cash, creating passive income can provide a great opportunity to increase your monthly earnings while devoting very little effort once established.

Sounds to good to be true? To some people, passive income is only a myth and can never be achieved. On the other hand, there is another group of individuals who believe passive income is possible and dream of collecting income while sitting on a beach somewhere drinking margaritas.

Regardless of how you define passive income, setting up alternative income streams is a necessary step in today's economy. The more passive you can build an alternative income stream to be, the better shape you will be in.

Let's take a closer look at what makes an income stream passive.

What is passive income?

There are many different loose definitions of passive income, including those that are regulated by the IRS. While the definitions vary, the main concept of passive income can be broken down into three characteristics.

  1. Initial Investment - Any successful passive income stream requires an initial investment. This investment may not necessarily be monetary and can include things like your time. Regardless the type of investment you are required to make, every solid passive income stream requires some upfront cost or effort in order to be sustainable. A few examples would include an initial cash investment into a dividend paying stock or 1 hour spent writing a "How To" article for publication on eHow or Info Barell.
  2. Limited Ongoing Involvement - Once a successful passive income stream is built, there is normally not a lot of required maintenance or effort on your part. This is typically where the two different groups of people differ in their definitions of passive income. Some passive income streams may require some periodic maintenance to keep it going. An example of this would be the reallocation of a dividend income stock portfolio to stay diversified. On the other hand, writing articles on eHow or Info Barrel can earn residual income for many months or years with no extra effort on your part.
  3. Possibility of Recurring Income - The final characteristic of a passive income stream involves the possibility of recurring income. Just because you make an initial investment does not necessarily mean that it will translate into a money maker. For example, not all dividend paying stocks are good investments and may actually lose money instead of make money. Likewise, just because you write a "How To" article on eHow doesn't necessarily mean you will earn a cent for your efforts. Keep this in mind and don't get frustrated if an income stream does not return any positive results.

As you can tell, there are several key characteristics that can make up a passive income stream. Regardless if you believe in true passive income or not, building multiple streams of income that can run themselves most of the time is critical in today's economy.


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Comments

Jul 10, 2010 11:07am
jcmayer777
Good info. There are tons of things a person can do to make a passive income stream. I've been able to build up my article library here and on other sites that has helped make a really nice second income.
Oct 4, 2010 2:48am
scheng1
Agree with your point about upfront investment cost. We must invest a few hundred hours of hard work into article writing for it to pay off.
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