Passive income vs. passion income

When I was a younger man — back before I founded Get Rich Slowly in 2006 — I was intrigued by the idea of creating passive income. While passive income isn't exactly a get rich quick scheme (and boy was I intrigued boy those back then!), there's certainly some overlap. Both passive income and get rich quick schemes appeal to lazy people like my younger self, people looking for ways to make money for nothing.

What is Passive Income?

Passive income, as the term implies, is money you earn on a regular basis with little or no effort required to maintain the cash flow after the income stream has begun.

Common examples of passive income include rental properties, royalties from books (and other published work), and profitable businesses that you own but in which you have little (or no) active involvement.

My interest in passive income started early in life. When I was a boy, my father was drawn to the promise of easy money. (See? This is another example of how we inherit our money blueprints from our parents.) Dad was a serial entrepreneur, as I've mentioned before, but he was also drawn to multi-level marketing schemes.

Multi-level marketing schemes lure victims participants with the dream of big bucks for minimal effort. Sure, you have to set up your own operation by recruiting customers and a stable of salespeople, but once you do — so the story goes — you can sit back and relax as the money pours in!

Like my father, I too was drawn to these schemes when I was younger. My first job out of college, for instance, was a multi-level marketing scheme disguised as an insurance company. On a daily basis, the job entailed going door to door trying to sell hospitalization insurance (that was essentially worthless), but the folks who really made money did so because they recruited salespeople who worked under them. The top managers made plenty of passive income because of the pyramid nature of the program.

That said, passive income is not inherently slimy. In fact, it's a terrific concept worth your attention.

Note: My favorite legit book about passive income is The Incredible Secret Money Machine by Don Lancaster. (Here's my review.) My dad bought a copy of this book when it came out in 1978, and I read it several times as a kid. (I still have Dad's old copy — signed by Mr. Lancaster himself!) If you're at all interested in legitimate sources of passive income, you should read the updated version of this book, which is available for free at the author's website.

The Power of Passive Income

The truth is that if you can create “multiple streams of income” that operate without effort on your part, these streams can be terrific supplements to your regular job. Actually, the crossover point, an integral part of Financial Independence theory derived from the classic book Your Money or Your Life, is built around passive income:

The Crossover Point provides us with our final definition of Financial Independence. At the Crossover Point, where monthly investment income exceeds your monthly expenses, you will be financially independent in the traditional sense of that term. You will have passive income from a source other than a job.

The Crossover Point

At the moment, I currently enjoy several small sources of passive income:

  • Each month, I receive between $30 and $50 from sales of Your Money: The Missing Manual, the book I published in 2010. (I earn about a buck per book.)
  • Similarly, I get about $100 to $200 each month from sales of the Get Rich Slowly course. My share of each sale ranges from $8 to $40 depending on a variety of factors.
  • I'm earning a tiny bit of revenue from a variety of websites that I've abandoned or neglected.
  • Kim is paying me $500 per month to vest into ownership of the house.
  • My top source of passive income comes from interest and dividends on my investment portfolio.

In the past, I've also received passive income through other sources such as business loans. (I loaned money to my family's box factory, for example, so the company could purchase a piece of machinery. The interest on that loan was passive income.)

There are folks who are under the impression that Get Rich Slowly itself is a source of passive income. Hahaha. Nope. Not even close.

For one thing, there's nothing passive about running this site. It's a full-time job, especially if I want it to be good. Plus, while Get Rich Slowly is generating revenue right now, it's operating at a loss and not a profit. (So, I guess you could say that GRS is a source of “active expense” rather than “passive income”. Ha.)

What is Passion Income?

During my short summer break last week, I took a morning drive to visit some friends. Jillian and Adam from Montana Money Adventures were passing through Portland during their 10-week “mini retirement“. I spent a couple of hours eating breakfast with them and their five kids.

Jillian was amused at how she kept burning the pancakes. (“This isn't my usual pancake batter. I'm used to Krusteaz,” she said. So am I.)

Jillian burning pancakes! :)

After breakfast, Adam took their troop for a hike. Jillian and I sat by the campfire and recorded a video that she'll use sometime in the future at her website. We chatted about travel (or course) and blogging (of course) and early retirement (of course). But then Jillian steered the conversation in an interesting direction.

We were talking about how retirement isn't always what people expect it to be, whether they retire early or not. A lot of folks quit their jobs to find that they're life is without purpose, that they're bored.

“That's why I encourage my readers and clients to pursue passion income,” Jillian said.

“Passion income? Do you mean passive income?” I asked.

“No,” Jillian said. “I mean passion income. Passive income is great, and if you can find a way to get some, you should do it. But passion income is something completely different. Passion income is money you generate by simply doing what you love.”

“That's interesting,” I said.

“And passion income is different for everyone,” Jillian said. “For one person, their passion income might come from creating art. For another person, it might come from consulting. For another, it might involve doing carpentry on the weekend. For you, it's Get Rich Slowly. The key, though, is that passion income combines what you're good at, what you like to do, and what matters to you.”

The Power of Passion Income

I said good-bye to Jillian and her family, then headed home. But along the drive, I continued to think about the notion of passion income. It's an idea that I've espoused for a while but never had a term for it. When I got back to the house, I dug through the archives at Montana Money Adventures to read more about the concept.

So far, Jillian has three articles about passion income:

Jillian says that passion income is derived from things that (a) are in your natural skill set or match your core competency, (b) you love the outcome and feel like you're making a difference, and (c) give space for other important things in your life.

She's created the following Venn diagram to show what she means:

Passion income diagram

While neither Jillian nor I would argue that you should “do what you love and the money will follow”, I think we both agree that in an ideal world you'd make money by doing something you enjoy. This might be difficult if you're currently in the middle of a specific career trajectory, but it's much easier after you've retired.

After you've left the traditional workplace, you have the freedom to make choices more aligned with your self and your vision. Pursuing passion income — whether it's through art, a hobby, or work in your community — can be an excellent way to take pressure off your retirement savings while also giving yourself a sense of purpose.

Thinking about it, that's really why I bought back Get Rich Slowly. My hope is that this blog will be a source of passion income (not passive income). And once I get the monetization thing figured out, I think it will be.

Combining Passive Income with Passion Income

The great thing, Jillian says, is that you can pursue both passive income and passion income.

That might mean doing something — painting, writing a book — that fits in both categories. Your work might fit in that passion income sweet spot, but then produce residual passive income in the future.

Or, that might mean pursuing multiple sources of income, some out of passion and some that are passive. (She points out that “the happiest retirees average eight streams of income”. I'm not sure the source of that stat, but it's interesting. And it makes sense. When you have diverse income sources, there's less risk to you if one of them dries up.)

Why even worry about passive income and passion income? Recently, I wrote about the struggle some people face to figure out how much to spend in retirement. While some people overspend, there's a sizable population that underspends. They're afraid to touch their nest egg.

Passion income alleviates the pain of spending. You get to work at something you love while also earning some money. And spending this money isn't painful, unlike spending out of your investment accounts.

Another benefit of passion income? If you're able to generate ongoing revenue with work that you love — whether it's part time or full time — you're able to quit your career much sooner than you would on a traditional early retirement path. If you can earn $1000 per month by building picnic tables, for example, that's $300,000 less you need to save for retirement (given standard assumptions).

As I near fifty, I'm still intrigued by the idea of passive income. I probably always will be. But the older I get, the more vocal I am that people should consider creating sources of passion income. Finding a way to earn even a little bit of money by doing something you love can not only be fun, but it can also help you reach retirement sooner — or make your current retirement less stressful.

More about...Side Hustles, Retirement

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olga
olga
1 year ago

I knit. A lot. 70% of it for myself, and 20% – gifts for friends and family (I am pretty much using random numbers, mostly I just knit, then if someone has birthday/other holiday, I pick something form my creations, but I also do knit with someone special in mind ahead of time). The last 10% are sales – more often than not simple things like hats and scarves, occasional tops and sweaters). I would never in my life be able to survive, or even feed myself on this “passion income”. However, I will likely never stop knitting, so sometimes… Read more »

Obafemi Adegoke
Obafemi Adegoke
1 year ago
Reply to  olga

If you can knit so well and you enjoy it. Why don’t you offer to teach people how to knit and you can generate income from that also. You can also put some of your works online. People can order for customized stuffs

Accidental FIRE
Accidental FIRE
1 year ago

I’ve never heard that term but love it. Jillian is clever indeed. My graphic arts side hustle definitely qualifies as passion income. I love doing it and it’s earning me a couple hundred bucks a month. Cooler yet, I can stop working on it and doing new designs at anytime and my stuff will continue to sell, so it can also become passive as well if I choose.

And kudos to you on the book sales, selling 30 – 50 books a month is no small feat!

Jillian
Jillian
1 year ago

That’s awesome! Sounds like the perfect passion income. And that is such a great skill set to have.

stellamarina
stellamarina
1 year ago

I like what Olga is doing with her knitting. The 10% sales covers the cost of her hobby that gives her so much enjoyment. It also provides a useful product that saves money from being spent on garments or gifts. My hobby of passion is growing useful plants. When I retired I decided that my garden had to pay for itself. So I sell a few plants that cover the cost of fertilizer and garden chairs etc. I think I also get some passive income from my breadfruit tree. The fruit grows without my help and a few people come… Read more »

Alex Gadd
Alex Gadd
1 year ago

I really enjoyed reading your article. It is true that when trying to make passive income, one should really focus on making a passive income which at the same time is something with which you are passionate about. So many finance gurus try and teach us to focus on only trying to make the passive income and retire to the beach; nothing about the passion behind the income.

And well done as well for your book sales.

Kim Heller
Kim Heller
1 year ago

I really like this topic of passive and passion income and would like to see more articles and discussions on this.
We currently have a couple different income streams but I would like to increase that by doing some passion work. I think my biggest challenge is lack of confidence.
I am also worried about liability- my ideas include things like hosting children’s birthday parties but what if someone gets hurt? Some discussion along those lines would be great.

Thanks Much!!

PawPrint
PawPrint
1 year ago

My sister is a great example of someone who makes passion income. After she retired, she took a photography course, realized she had a good eye and enjoyed it. She got involved with an artist’s cooperative in the Oregon coast tourist town she lives in and now she’s a top seller there and an award-winning photographer.

croz
croz
1 year ago

Your friend’s diagram is eerily similar to a Japanese concept called ikigai:comment image

WantNotToWantNot
WantNotToWantNot
1 year ago

“Passion Income” is a wonderful concept! Something everyone should have a goal (and the pancakes look great to me). I first encountered “Passive Income” from reading Jane Austen novels when I was a girl. These novels are all about money. I was trying to figure out what it meant when a heroine “had an income of 400 pounds” or lost the chance to have “1,000 pounds settled on her.” What? I knew it was important and good, but how exactly did that work? I finally put it together when my great aunt took me out to the local drugstore for… Read more »

A Millionaire Next Door
A Millionaire Next Door
1 year ago

I too was lured by the passive income (aka residual income) aspect of MLM in my naive 20s back in the 90s. It did expose to me and teach me the potential power of passive income. I am very passionate about real estate and music. Both now are sources of good passive income, rentals and royalties. I think to truly create passive income it must involve something you are passionate about – they intertwine. The trick is to find passionate interests that actually can pay! Like anything, it takes work and patience but is possible.

Chris @ Mindful Explorer
Chris @ Mindful Explorer
1 year ago

Thanks JD and Jillian for sharing this article with everyone. I had goal to FIRE but never thought my fun side passion and blog would turn into something. As my passion income grew I was able to make the leap and FIRE much sooner leaving behind a career that was no longer within my lifestyle and mindset. I hope others will benefit from reading what you have shared here. Cheers

Melissa
Melissa
1 year ago

Great content. I was just thinking about this topic this summer. I’m an English teacher in Spain, and we’ve got summers off. Boredom always sneaks in at some point, and I was wondering how I’d ever cope with retirement.

Also, great to have you back, JD. I’ve always been a silent reader, but I love this more personal content, which is the reason I originally started reading. So many personal finance blogs go the corporate route, but they don’t have the same voice and soul.

Xrayvsn
Xrayvsn
1 year ago

Love the term passion income. That to me would be the ultimate goal to strive for. Doing something that brings you a sense of purse, something that you would love, and something that can bring money as well. For me I have definitely found a renewed sense of passion by blogging. It stimulates my creative juices, allows me to interact with a community that I am honored to be a part of, and it keeps my mind sharp. My girlfriend even mentioned that there is now a new spark in my eyes and can see my demeanor change for the… Read more »

Sara G
Sara G
1 year ago

Passion income is a great term! Definitely something to strive for. You mentioned : “•My top source of passive income comes from interest and dividends on my investment portfolio.” Can you share where you have invested your money to obtain dividends?

vrimee
vrimee
1 year ago

I’m hearing the concept of passion income for the first time. However, I think the toughest part is to find how to make money from our passion. And, most of the times people are not able to proceed further because they don’t know the right direction.

Can you share any tips on finding the right mentor or like-minded people who share the same passion as us so that we can learn from them?

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