Passive Income

Passive Income is income that does not require your direct involvement. It is the type of income that once setup, requires no further input from the recipient. Music, movie, rental income, television, book and screenplay royalties, patent royalties, click through income, and on-line advertising revenue are just some examples of different types of passive income.

In case of books, for example, publishers recoup advances paid to authors along with printing costs before royalties are generated. If a book does not sell well, it might not make the author money at all. For websites, the challenge is in creating not only good content, but also in achieving high placement in search engine returns in order to generate the amount of traffic required to be successful. Without substantial traffic, passive income will be minimal to non-existent.

The attraction to investing much time in a task with so little guarantee, is that if successful, the venture can generate money 7 days a week, 24 hours a day, for years to come. Whether vacationing, at home grocery shopping, lying asleep at night, or at work on the next project, passive income is always being generated. Once a project is self-sufficient, the entrepreneur can start another, ideally creating several streams of income, building a substantial yearly revenue that allows maximum freedom. Unfortuanately, passive income is taxable in the United States.

If you want to earn more, work less, and have a decent retirement, you're going to have to start creating income streams that do not require your full direct involvement. Whether you're just starting your business, or you've been running it a while, the sooner you start thinking about how you are going to shift your business model to create more passive income, the sooner you can achieve personal and financial freedom.

In a nutshell, to earn passive income you don't need an alarm clock. Basically, you earn the money but you don't have to be that involved in the active work.

One of the two basic types of passive income is Residual income. Residual income is revenue that occurs over time from work done one time. Some examples are:

*     An insurance agent who gets commissions every year when a
      customer renews his policy.
*     A marketing consultant who creates a workbook and sells it in an
      e-book format on the internet.
*     A network marketing or direct sales rep's income from his/her
      direct customers when they reorder product every month.
*     A photographer who makes his photos available through a stock
      photography clearinghouse and gets paid a royalty whenever
      someone buys one of his images.

As you can see, there are many different ways to generate residual income across a wide variety of businesses. It may be recurring income from the same customers, or the sales of a product to new customers. It may require no personal involvement whatsoever, such as an e-book sold on a web site, or it may require some personal interaction, such as the insurance agent calling the customer to remind them about their renewal and ask them if they want to change any of their coverage.

Another basic type of passive income is leveraged income. Leveraged income leverages the work of other people to create income for you. Some examples include:

*     A general contractor who makes a profit margin on the work done
       by sub-contractors.
*     An e-book author selling her e-book through affiliates who promote
       the product.
*     A network marketer who builds a downline and received
      commissions on the sales made by people in his downline.

Again, there are many different models in many different businesses. The key is that you are making money off of other people's labor, rather than primarily your own. Note that leveraged income may or may not also be residual income. When you combine them, that's even better.

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