I am very passionate about passive income. In fact, that may be a huge understatement. In my opinion, it’s the 8th wonder of the world. But what is passive income exactly? Well, apparently there are a lot of variations and acceptable definitions as to what passive income actually is. How do I know this? My pursuit of passive income has led me to do a massive amount of research on the subject and most of the time, my Google searches result in something other than what I would consider true passive income.
So what is passive income really? Investopedia defines it as, “Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not materially involved. As with non-passive income, passive income is usually taxable; however it is often treated differently by the Internal Revenue Service (IRS). Portfolio income is considered passive income by some analysts, in which case dividends and interest would be considered passive.”
In general, I think this is a perfectly acceptable definition, but I would tweak one component of this definition. Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved in the day-to-day management. I want my income to truly be as passive as possible. So, I want to buy a dividend growth stock and just sit back and collect the cash flow via dividends or I want to buy a house and hire a property manager who handles everything including sending me the rent checks. That the TRUE passive income!
You can get a lot of other definitions of passive income and most of the time it refers to making money online via websites, blogs, etc. In order to do this you must build a website, write a bunch of content, actively promote yourself and your site, etc. My point is all of this takes a ton of work and is hardly “passive”. If this site ever makes money, trust me, I wouldn’t consider it passive income.
However, when you search google for passive income the fourth result is “43 Best Passive Income Streams & Opportunities” which is all about making money online by creating a bunch of assets like ebooks, blogs, etc. One of the most prominent “entrepreneurs” (they like to call themselves that) in this space is Pat Flynn and his business is literally called “Smart Passive Income”. His business model is creating content to drive traffic or sales that is monetized in a number of ways. While this is a great way to make money and possibly a living, again, this is not true passive income.
The reality is all passive income requires at least two things; an upfront monetary investment and/or an upfront investment of time. If you are already earning money through something like your job, then you can use that cash to make an upfront monetary investment so that cash works a little bit harder for you. To me this is the best form of passive income, using assets you are already generating to make investments in assets that will use that asset to generate additional cash flow.
Using your hard earned cash to make investments that create predictable cashflows in my opinion is right for the average investor and the average individual as well. Here are a few places that I believe got it (mostly) right:
- Good Financial Cents: 23 Passive Income Ideas You Can Start Today
- Financial Samurai: How To Build Passive Income For Financial Independence
- Afford Anything: I Want to Create Passive Income, But I Don’t Know Where to Start
That is what Predictable Snowball is all about. The tag line says it all; “creating predictable passive income” and it’s what I believe will lead to freedom. The idea that real, true passive income will create cash flows by putting your assets (cash) to work for you. These cash flows can provide you financial freedom and when you have that it means your able to do what you want, when you want and that, well, that leads to true feedom.
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Disclaimer: I am not a investment or financial professional of any kind. Any information contained within this site is for informational purposes only and should not be considered advice or a recommendation of any kind. All information is simply an opinion and should be treated as such.