Earlier this week, J.D. wrote about what he calls the biggest truth in personal finance: You can't get rich through frugality alone. As Liz at Frugalwoods says, “You can't frugalize income you don't earn.” Income is one-half the fundamental personal-finance equation, and it's probably the most important half.
J.D. advocates a three-pronged attack for boosting income: becoming better educated, becoming a more valuable worker, and learning to negotiate salary. But I think he's missing a fourth important income source: the proverbial “passive income”.
I know, I know. Passive income has a bad reputation. Actually, passive income has a terrible reputation. And deservedly so. The Land of Passive Income is populated by scammers, hucksters, and charlatans. “Hey, little boy, wanna buy my course?” (Sorry, no links. They're easy enough to find without us helping them.) That's too bad because legit sources of passive income can be a great way to make more money.
What is Passive Income?
First up, let's be clear: Actual passive “passive income” (as pitched by the scammers) is a lie. It doesn't exist. When we talk about passive income, we're talking about ways to make minimal money with minimal effort. Does that make sense? And it's a supplement to your main income, not the primary source.
To me, passive income is money that’s earned, usually on a recurring basis, without a significant time investment.
For example, if you own a rental property that brings in $1500 each month, but only requires two or three hours of time to manage, that's (mostly) passive income. Most nine-to-five jobs are the opposite of this. The income you earn is tied closely to the amount of time you spend at the office.
That’s not to say that passive income doesn’t require effort, though.
Often, there’s a lot of upfront work required before income can become passive. Using the same rental property example, before you can make any money, you have to purchase and renovate the property, and spend time advertising and interviewing potential tenants. All of that takes time and money.
Or, take J.D.'s book as an example. When I asked, he told me that he spent four months working full-time in 2009 and 2010 to write Your Money: The Missing Manual. That's not passive! But he hasn't touched the thing since then, and he continues to receive $50 checks every month. That is passive.
Passive Income Ideas You Can Try Today
Some degree of passive income is possible — and without shyster shenanigans. In this article, I’ve compiled 40 passive income ideas for you to consider. Not all of these passive income ideas will be right for you. In fact, maybe none of them will fit you. That's okay. But I'm willing to bet that many GRS readers will find at least one source of inspiration here that they can use to help increase their income…even if it's only a few dollars per month. [Read more…]