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.

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.)

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. [Read more…]