The IRS defines passive income as income from “trade or business activities in which you do not materially participate”.
Traditional sources are dividend/interest income from investments, rental income and royalties from books.
When you perform work and get paid for it, no matter how well you’re paid, that’s not passive income. That is trading time for money. I realized a few years ago that unless I charged a gazillion dollars for my services, that my income would be capped by the number of hours I worked. So I got busy creating income alternatives beyond coaching and training.
If you own a business but are not working in the business, the income you receive from that business is passive. In the 4-Hour Work Week, Tim Ferris describes ways in which you can create income that require little or no effort on your part. You may work in the beginning, but the key is to set up systems so the business works without your involvement.
Here are some of my online favorites.
1. Information products (books, CDs, home study programs) can be sources of passive income. They do require work for their creation, but once done, fulfillment (delivery) of the products can be outsourced. If you’re in business, you have some expertise that can be turned into a book, CD or DVD that people will purchase. When you sell them online instead of ‘hawking’ them personally, you’re getting paid on-goingly for work you did perhaps years ago.
2. Affiliate programs (where you sell someone else’s products or services for a share of the revenue) are also opportunities for passive income. Again, you may have to set up websites and traffic generation strategies to make those products & services visible to others, but once done, ka-ching!
3. Network marketing programs have made many people thousand-aires and even millionaires. There remains a slight stigma in some people’s minds about pyramid schemes. But most multi-level and network marketing programs these days present legitimate products and services that people are buying and consuming.
4. Licensing involves creating intellectual property (like books, systems, processes, etc.), protecting them with trademarks and patents and then selling rights to others to market the products for you. If you have (which you do) expertise in your field, you can create information products and systems that you can license to others.
The key here is to get in early with an offer you believe in, particularly one that is ‘consumable’ where clients buy something every month without you having to sell it to them. It could take a couple of years of dedicated effort to build up a clientele and train a ‘downline’ so that they’ll work the business without you. But it’s possible to do.
Kim Kiyosaki shared some startling statistics in her talk at NAWBO. She said “58% of Boomer women have less that $10K set aside for retirement.” Yikes!
It’s not too late. But don’t wait. Take action now. Do a little research. Find something that you can get behind. Devote at least 10% of your time each week building passive income streams and stop trading your time for money before you run out of time.