the truth about passive income

A few years ago when I read Rich Dad, Poor Dad, the concept of passive income lit my brain on fire. I had never thought of the idea of making money for nothing.  I assumed that money was achieved only due to the hard-pressed exchange of time for filthy lucre.  Kiyosaki, the author of RDPD, assured us that passive income was the key to wealth.

Where is the passive income?

I plunged into research. I identified rental income, investment income and even creating original content as “passive income.”  I had visions of checks flowing in, one after the other, landing in a pile on my desk called the PI pile.  But after time, I realized that the pursuit of passive income was nearly impossible through these routes.  How can you really make passive income?  Inquiring minds want to know, when they aren’t trying to figure out how much of a jerk John Edwards is for cheating on his wife with the anti-heroine of this story.  These are the top 8 “real” ways to make passive income, but even they have a catch – all but the last one.

What Are You Looking At?
1.  Pick up spare change off the ground. You do have to bend over, but you probably do that at work every day, so you’ll at least be getting something out of this transaction.

2.  Marry someone rich. You’ll have to do some work, true, but if you aim high enough we’re talking about a huge return on investment here.

3.  Hook up with someone rich and desperate enough to pay to keep you around – the classic “sugar daddy” scenario.   Granted, you may have to do some work here… but I’ve seen this work out where surprisingly little effort is expected in return.

4.  Have someone else do the work for you; a nice trick if you can manage it.  Ask your buddy the web designer to create a website for you – for free.  Why would he do it?  The exposure?  The joy of being taken advantage of?  Don’t worry – you’re getting passive income!

5.  Win an office lottery pool. OK, you risked a few dollars, but someone else went to the bodega, bought the ticket and checked the results.  You didn’t put much sweat into your share of the Mega Millions, did you?

6.  Gamble. There is, of course, a potential downside here.  But if sitting around sipping free martinis while playing a game and winning isn’t as close to passive income as possible, I don’t know what is.

7.  Invest in dividend-paying stocks. This point is a cheat.  You have to earn the money that you use to buy the stock.  On the other hand, everything that happens after you buy it is gravy.  That income becomes close to truly passive – so the trick is to use windfalls (an economic stimulus check, for example) to invest in dividend-paying stocks.

8.  Be born rich. Yes, you have to be nice enough to great-aunt Milfred to avoid getting cut out of your trust fund, but let’s face it:  this is as close to passive income as you’ll see in this life.

Don’t think you’ll get rich without working for it.  Everything you can generate wealth from takes effort.  Writing a book is hard work.  It may create a wealthstream for years to come, but that’s what you should be aiming for:  wealthstreams, not passive income.  Don’t imagine that there’s a magical key to wealth that doesn’t involve either hard ongoing work or a good bit of upfront work.

photo credit: Christina Welsh (Rin)

  • http://www.dividendgrowthinvestor.com/ Dividend Growth Investor

    Nicely put Brip Blap!
    I agree with Bubelah that Rental properties could be a passive income if you buy a REIT or hire a property manager to do the work.

  • bubelah

    I don’t think that passive income through rental properties, ivestment incomes and original content are nearly impossible. Everything IS possible! That’s the first thought that should be on everybody’s mind. Of course, you have to do some initial work to set it up to work and generate passive income. If you do it smartly, you don’t have to put anymore sweat into it and enjoy it.

  • Richard

    Kiyosaki changed the way I think too but this type of idea is often taken way too far by people who have no experience (or want to sell something to those who have no experience). He makes a lot of things sound easy – and they probably are if you have years of experience in that area. If not you’ll have to make a lot of mistakes first but that’s the only way to get experience. Even though you have to do a lot more work than advertised and take risks somewhere, most of the things he mentions aren’t too bad if you’re interested in them.

    The only thing I consider real passive income is investing – not trading – in something entirely controlled by other people (stocks and bonds). But there’s different degrees of “earning” money.

    For example, after earning money the hard way for a couple of years (and missing out on about a 1-1.5 years of entry-level salary) I’m now starting to make profits. I still have to do ongoing work to get the profit, but I’m being paid for my time and someone else’s time. I’m not flipping commercial properties and buying luxury cars for “business” purposes yet but I know this is a step closer. Now that I’ve started down this path I can gradually offload more work while increasing my earnings and only focus on the parts that really need my attention.

    A lot of people think they’re above any income that’s tied to ongoing work but if your “hourly rate” is doubling or better every year you really can live with it. And you can invest the profits for real passive income. Kiyosaki definitely skips over the hard but essential parts where most people give up but if you start thinking this way and you really want a different type of income you can get there, step by step.

  • http://freefrombroke.com FFB

    Passive income still requires work. Usually a lot in the beginning or at least a good amount of money. I guess a lot of us want the passive part of it to mean little or no work.

    I consider interest on my high yield savings to be passive.

  • http://paradigmshifted.wordpress.com deepali

    is it embarrassing to admit that i actually employ some of the strategies in the top 5? but in my defense, it’s not really for income-making… :)

    but you didn’t include real estate…? there is work upfront, but over the long-term, it could potentially be passive-income-generating…

    • bubelah

      Good for you. Please don’t apologize. It’s not embarassing at all.

  • http://thepassivedad.com/ Scott @ The Passive Dad

    Passive income can take a small or large investment up front, but should require very little effort going forward. I also think reits or oil rich dividend paying stocks can be a wonderful source of passive income. Prosper can be a good start to passive income with a small investment. Also, Squidoo, and BigCrumbs are others that require nothing but a little marketing to friends and family and you're off to the races. So many ways to earn passive income, it's hard to sit still:)

  • http://www.thewriterscoin.com Writers Coin

    Passive income is checking my adsense account on Sunday night after not doing any blogging over the weekend and seeing that I made $1.04 on Saturday and Sunday.

    It's pennies, but it's passive!

  • theCase

    I disagree with the idea of a duplex NOT being passive income.

    I bought one about 20 years ago, and yes, the first few years were tough, but I never did NOT make money on it.

    Now it is paid off. I pay a management service 6% plus costs to handle the upkeep, receive rent, and screen tenants. My only interaction with it is to open an envelope containing a statement of activity and a check for about $1250 about once a month. This is about as passive as it gets.

  • http://www.multifoldreams.com/ Plamen

    For me you have passive income when you are not paid by hour for the actual money coming in. It requires some work in the beginning (writing a book) and/or smart decision (buying the right stock or rental house).
    There are different levels of passive income of course from doing nothing (for getting your dividends) to spent few hours a month to upkeep your rental property …

  • http://www.writingforyourwealth.com Lindsay

    Rich Dad, Poor Dad is making its author a buttload of passive income. ;)

    I make a living from my blogs and websites working about an hour a day. It's not entirely passive income (though I do have sites I haven't touched in a year or more and that still bring in money every month), but it's as close to my dream job as I've gotten.

    That's what passive income is for most people. There are ways to build assets, whether through writing content (books, websites, etc.) or buying real estate, but it's hard for anything to be entirely hands off. And who would want it to be? Being retired would be boring in the extreme. ;)

  • http://www.shtinkykat.blogspot.com shtinkykat

    Saw your article in the Carnival. I've also created a link to this article on my post. :-D

  • http://funny-about-money.com Funny about Money

    LOL! I was afraid of this. These are all too much work for me! :-D

    • bripblap
  • http://www.savingtoinvest.com/2008/05/new-goal-300-monthly-passive-income-by.html Andy

    Passive income is my key to financial freedom and I think it can be achieved. This year for example my goal is $300 p/month. Well on the way to achieving that. Blog income is part of that, but it takes active work to generate that stream of passive income.

  • tulalue

    I have been a landlord for 26 years and rental types of investments always require work. However, with mortgages paid off, rewards are now being paid. It takes time, patience and hard work, nothing in life comes easy!

  • BillionaireWoman

    Very cute list. I believe passive income is possible, but sometimes you need to think outside the box. The truth behind passive income is that you need to put in some upfront work to actually get it going. Think of creating a product and selling it: you need to create the product, then create a system to sell it. After that, money should continue to flow in “passively”.

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