What is Passive Income and Why You Want It

As an individual the number of hours you can work and the amout of revenue you as an individual can generate is finite. To break that barrier you need to generate passive income. In this article I will explain passive income and provide examples of three types of passive income.

Passive income is defined as income you generate without actually being involved in the actions that generate the income. In other words, it does not require your direct involvement. You can be sick, go on vacation, and still generate income, as the income will not stop just because you’re not there.

Let’s take a quick look at two types of residual income and a third type of income that technically is not passive but can play big role in generating income.

Residual Income:is income you earn over time from something you do once. Examples of residual income:

  • An insurance agent will sell a policy that’ll continue to generate income for him over a period of time as the policy owner renews..
  • A salesperson may sell subscriptions where he earn income everytime the subscription is renewed.
  • A direct sales person will recruit and train other to duplicate his succes, thus generating him income over time from his downline.
  • An eBay consultant who creates a manual and sells it as an ebook will continue to make money over time even though he only created the book once.

    • Leveraged Income:uses the work of others to generate income for you. For example:

  • If you create a DVD on how to become an eBay Powerseller. You then set-up an affiliate program to have others sell the DVD for you on commission.
  • A business franchise is a great example of leveraged income. The fanchisee pays you royalty for the use of your business name, concept, tools etc.
  • A direct sales person uses the leverage of his downline to generate revenues.

    • There are many different models of both residual and leveraged income. A model that combines both is even better. As an example if you are the owner of the insurance company you’ll receive residual income when policy owners renew, but you are also making leveraged income by using agent to sell your product.

    The third type of income though not technically passive leverages people but in a different way. I am referring to active leveraged income. This is income derived by the direct participation of others. For example:

  • An event promotor makes money getting people to participate in the event. Examples include concerts, conferences, seminars etc.
  • You give a seminar. Your income can increase dramatically by having people attend your seminar, as opposed to you doing a one-on-one consultation.

    • Passive income will allow you to multiply your revenue without having to multiply your work. I am creating a category on this blog devoted to “Passive Income”, in it I will provide more detailed examples and ideas on creating passive income.

    Regards

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