There are three broad categories of income: earned, portfolio, and passive.
Earned income is simple to understand, if you get and keep a job, you’re making earned income. The problem with earned money is that if you can’t work for some reason, the money stops flowing. Cash flow is usually pretty steady so long as you have solid employment. Of course there is a risk in relying too much on just earned income. If you are injured or sick or get laid off all of the money coming in dries up.
Basic investment advice is to diversify to mitigate risk. The same advice holds for income. Having two people in the household working helps but delving into other forms of income protects against even more scenarios.
Building an investment portfolio is pretty straight forward. Read some books to learn about how investing works, then find a broker, open an account and start buying and selling stocks or mutual funds or whatever. There are two ways that stocks make you money, through realized appreciation in value, and through dividend payments. The biggest problem is that it takes a sizable chunk of money in order to make enough money to live on, or even get started. The stock market has historically returned about 8% per year. At that rate to realize an income of $50 000 you’d need over $600 000 invested in the market. Seems hard to achieve. That’s why portfolio income is usually not realized until retirement. Up until then the money is hopefully continually invested and compounded.
Having that portfolio there however will reduce the risks of working paycheck to paycheck.
The third and probably nicest yet most difficult form of income to receive is passive income. The most common source of passive income is from real estate and property. Renting out a room in your home, or buying a home, and renting it are some examples. Other examples include royalties from books and patents, and some network marketing businesses. There are two major benefits to this form of income.
- Generally the income is regular. Perhaps you get a check in the mail once a month from a tenant.
- Once the stream is set up, there is very little work required to keep it going.
Unlike portfolio income, passive income won’t swing into the negative. Where as it is possible for the market to crash, taking with it all you’re hard earned money. A good passive income will be checks in the mail and not bills. Unlike earned income, it’s not dependent on how much time you put into it.
The problem with passive income is that it is usually hard work to set up in the first place. That upfront cost keeps most people away from making a passive income.
Here’s my list of great passive income ideas:
- Rental Property
- Write some software
- Publish something
- Become a partner with a business
- Invent something and patent it
- Join a network marketing business (one with a good training program)
- Write and sell an e-book online
- Build a portfolio of photos to sell
- Create a product and sell it through affiliates
- Develop a business idea and outsource everything possible
- run Pay-Per-Click advertising campaigns
What do you think? Do you have any more ideas?
One of the ideas that I’ve had the most success with is affiliate sales on the internet. Â I make money every month by selling information products through the various websites that I maintain and with online advertising. Â If you’re interested in learning how that works I’ll recommend you read about the clickbank code. Â It is by far the simplest way I’ve found to earn a passive income. Â (By the way.. Â that link is an example of how I do it)