Passive Income

Although this blog centers around passive income and its usefulness in providing financial freedom (see previous post for definition of FF), I don't think I really did a good job of defining passive income.

This is a fundamentally important concept, so I want to spend a post on it.

Definition

Passive income is income received while you do nothing.

Passive income is typically either investment income or income from PASSIVE businesses. By passive businesses, I mean one in which you can completely walk away from for a year and it will be making more money than when you left. (Hint - it still requires someone to be minding the business, it just doesn't have to be you!)

There are VERY few truly passive income investments (usually you are doing at least a little bit of decision making - e.g. whether to buy a certain mutual fund or stock), but I use the term for any income where you can either set it up and forget about it or you have the ability to highly leverage your time using: (1) systems, (2) other people or (3) assets (money or other assets).

Passive Income Example

As an example, let's look at the credit card tradelines I previously discussed.

The money I make from authorized users (usually about $100 for 5 minutes worth of work) - good compensation for the time as I am leveraging an asset (good credit), but not passive income.

I also get paid a fixed fee for referrals - not quite as good a compensation for the time as I am not leveraging anything.

Finally, I get a % of earnings from the referrals as long as they are earning money - THAT is passive income. Once I get referrals set up, I continue to earn and collect income without doing anything (except cashing the check - whoops, direct deposit has even eliminated that "hassle").

Passive income and THE BLOG

Now in this blog, I will discuss a lot of activities that are not truly passive, but at the very least I will try my hardest to avoid trading time for money (where you are compensated by the hour, month, whatever).

Some will have more involvement from me than desired (at least initially), but the hope from each is to be able to either turn it into completely passive income or produce great compensation for the time involved in order to invest that money in other investments or businesses that produce passive income.

I hope you will see the same usefulness in each of these opportunities. I realize that everything that I try (or even hear about) is not going to appeal to you, but my hope is that this blog provides you a "smorgasbord" of opportunities from which you can pick and choose.

Financial Freedom

I did not really define this well up front, so I want to make sure and define what financial freedom means to me. I think one of Harv Eker's (or T. Harv Eker when he's an author - more on that later) declarations sums it up well:

"I have more than enough passive income to pay for my desired lifestyle."

In other words, you have more than enough income coming in without you having to work for it (from investments, passive businesses, hands-off rental income, etc) to more than cover your expenses.

There are several ways to achieve this financial freedom: 1) increase your passive income until it more than covers your desired lifestyle, 2) simplify your desired lifestyle until your expenses are less than the passive income you have, or 3) some combination of the two.

You can have financial freedom and still be generating an active income from work - you just have the freedom to stop working if you want and still have enough income to live off of. (Yes, I use dangling prepositions because the "correct" grammar just sounds wrong.)

The freedom to work or not as you desire and still have your desired lifestyle - this is financial freedom. I want us to have this common definition for future discussions :)