Passive Income Streams

So you’re behind this month due to unexpected expenses. What’s your course of action? If you’re like many Americans, you may see about the possibility of putting extra hours at your job or adding a second job to extend your income. While it’s time-honored and effective for short-term situations, there’s a serious flaw in the concept. Whether your main job is salaried or hourly, you’re essentially selling your time. Certainly, your knowledge and expertise has value, but that may be the difference in value between $15 and $25 hourly rates. It still comes down to your time. As you’re likely already aware, your time is a limited resource.

Consider that each day is 24 hours and about 8 of those are for sleep. If you’re already working 8 hours a day, there’s 2/3 of your day already spoken for. Getting ready, commuting, meal preparation and simply sitting down to catch your breath all fit into that remaining 8 hours. There’s not a lot of time left there for you to extend the revenue producing activities your bank account and regular bills may demand. So, you can either cut back on expenses, target a raise or start running up a sleep deficit. Wouldn’t it be great if you could earn money while you’re asleep?

The Concept of Passive Income

In a nutshell, passive income is revenue that you earn without day-to-day effort. That doesn’t mean there’s no work involved. Don’t kid yourself, there may be quite a lot of effort required. This is a front-end load, though. The ideal passive income stream starts with the idea, product creation and marketing. Sales, however, continue without your input. The internet store concept is perhaps the most obvious example. People around the world can shop on your website, regardless of your presence. You really can earn money while you’re sleeping. That’s hardly the only way to generate passive income, however. If you’re an author or songwriter, for example, your intellectual creations could have an income-producing life that goes far beyond the time necessary to create the work, in the form of downstream sales and royalties. Put the effort in once, and reap the rewards for a much longer period of time.

Investment is another way to turn downtime into money, but of course, it depends on a reserve of capital to generate returns, such as interest or dividends. If you’ve been successful with retirement savings, it’s possible to convert all or some of your nest egg into an annuity that pays out regularly, even before retirement. Remember, however, you’ll be taxed on these earnings based on your current income level, rather than your post-retirement income. For most people, retirement savings and interest represent passive income for some point in the future.

Passive Income Ideas

Coming up with the perfect passive income vehicle for you may be easier than you think. There’s no single platform, and the opportunities can be quite varied. It’s probably best to stick to either fields you’re familiar with, or those about which you have a strong interest in learning. The Internet is a great resource for seeking out ideas, but be careful of get-rich-quick schemes. If it seems too easy, it’s probably a scam. Some passive income sources that may work for you include:

Crowd-sourced Lending

Peer-to-peer lending essentially puts you in the position of banker, but with a tiny fraction of the capital investment. You can invest as little as $25 in a loan to business. As with any loan situation, there’s a risk of default, but the rewards potentially outstrip traditional investment returns. Diversify your lending portfolio to mitigate potential defaults.

Real Estate Investing

A similar platform exists for real estate vehicles only, a real estate investment trust, or REIT. The REIT owns the property and takes care of landlord duties, but you have a share position and can invest with $500 or more. There’s no guarantee of return, but they offer a range of investment strategies and double-digit returns are entirely possible.

Convert Your Hobbies

Have an interest in photography? You may be able to build revenue through stock photo sites. Crafty types have been using E-Bay and Etsy for years to sell their wares. These types of approaches aren’t fully passive, unless you’d be creating your work regardless of a sales platform. Look for things you do anyway, and find an earnings market for them.

Royalty Income

While not everyone has skills that can turn into successful intellectual property, if you’re an exception to that rule, look for outlets that pay royalties for your creations. Musicians who write and record their own music can find music libraries to re-sell their material, creating royalty streams through performance and other rights associated with the sale and licensing of music.

Affiliate Marketing

Active bloggers and those with high-traffic websites monetize through Google Adsense and other online opportunities. When your viewers click through from an ad on your site, a trickle of income returns down to you from the traffic referral. In some cases, you may earn a selling commission if a redirection results in a sale.

About Paul Gaulkin

Paul Gaulkin is enrolled with the US Treasury to practice before the IRS. Mr. Gaulkin possesses technical knowledge in the process of securing relief for taxpayers in need of tax help. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


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