This is what passive income is

35 replies
Here is the definition of passive income as far as I'm concerned:

Passive income is income that is made without you needing to be present at the time in which it is earned.

Active income, on the other hand, is income that is earned via the "earn X amount for X amount of work" model.

Neither are truly "passive". Of course you will still need to do work in order to generate income. However, by setting up a "passive income system" (such as a website where you have a product(s) for sale), you have the abilities to earn income while you are away from your computer.

After the system is correctly setup, you could completely stop doing work altogether on it, but you will still have the potential to earn income (via people visiting your site and making a purchase).

Yes, you will likely need to add fresh content to the site as well as maintain it. However, if you wish to take an extended vacation, you can do so without cutting off the income flow.

So no, "passive income" is not truly passive, but it is a different means of income generation then the more well-known and generally accepted "active income" model (ie. Working a normal job).
#income #passive
  • Profile picture of the author Tonny Robb
    It's really depends Of person's perspective.

    But for me, i just know that i definitely love passive income.

    Do or set up one time, but earn for a long time. I really love the way it is.
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  • Profile picture of the author Frank Donovan
    Originally Posted by Rob Aseto View Post

    Here is the definition of passive income as far as I'm concerned:

    Passive income is income that is made without you needing to be present at the time in which it is earned.

    Active income, on the other hand, is income that is earned via the "earn X amount for X amount of work" model.
    Passive/schmassive. I once owned a chain of stores and employed staff to run them. By your definition, that was passive income, although it didn't feel that passive to me at the time.

    Whatever we choose to call our business model, I believe the key distinction is between being paid for our time - which is limited and difficult to scale, and creating a business asset - which has potentially unlimited scope and scalability.

    I favor the latter model, but different strokes...
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  • Profile picture of the author inyourway
    I earn money from both passive and active income.. Sure, like you said, I had to work and put in lots of effort to start generating that passive income, but since I now can earn without spending time online, automatically, I'd call that passive income even if I had to work to get that in the first place..

    From active to passive, which ended up in active & passive income.
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  • Profile picture of the author danieldesai
    To me, passive income is what comes from systems that you can leverage to maintain a level of income even after you stop actively working.

    A good example of this would be YouTube videos where you promote an affiliate offer at the end; once the video is made, you can get organic traffic (and sales) from YouTube for months or even years without any extra work.

    In the case of something that requires a more constant effort, if you can outsource the necessary parts of your business and hire a manager, you can still make income with very little labor on your part (successful brick and mortar business owners sometimes do this, I know a couple).

    The catch with all of this though, is that building these systems are anything but passive.

    Regards,
    Daniel
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  • Profile picture of the author jazbo
    There is no such thing as passive income, all income requires some effort at some stage.
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    • Profile picture of the author H_Wilhelm
      Originally Posted by jazbo View Post

      There is no such thing as passive income...
      You must NOT work for IRS! ;-)

      Source: https://en.wikipedia.org/wiki/Passive_income

      The Internal Revenue Service categorizes income into three broad types, one of which is "Passive (unearned) income" and provides the following clarification as to what Passive Income is defined as:

      1) Rental activity
      or
      2) Trade or business activities in which you do not materially participate.
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    • Profile picture of the author Elvis Michael
      Originally Posted by jazbo View Post

      There is no such thing as passive income, all income requires some effort at some stage.
      Then you are clearly viewing the word "passive" the wrong way.

      I have said this countless times already:
      Nobody ever said that passive income exclusively means "I don't ever have to work again."

      In this context, "Passive" simply means that the income comes in slowly (gradually) over irregular intervals. But again, there is NO rule stating that passive income strictly means "Set and forget."

      So, to modify your statement, I would say: "There is no such thing as set-and-forget income.

      Here's a good example based on what you said:
      I make money from Amazon books that I initially published in 2012, and I modify them ONLY once a year. Even though i put in the occasional effort, this still qualifies as passive income because the money comes in gradually, as opposed to coming in at the exact time that I worked on them.

      I hope this helps you.
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  • Profile picture of the author Harry Exper
    The term passive income is misleading. I think those who use that term actually meant to say autopilot business - a business that is set up once and runs itself without your help or that of any human. Selling product, receiving payment without anyone's help while you sleep, happens because your business is operating on autopilot and this is what most people call passive income.

    Thanks to the help of computer, a business can be set up and left on autopilot, products can be created, saved and never be exhausted, transactions can be processed without the work of any human. Of course the promotion of the business is still done by humans, but most of the business processes is left on autopilot, and this is what people call passive income.
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  • Profile picture of the author Tom Addams
    Income: "Money received, especially on a regular basis, for work or through investments." In IM, a pure passive income model requires investment to setup, such as time and startup capital, and will then produce income without any further investment. You have a handful of pure passive income models, but the majority of passive models are defined by varying degress of inactivity. One example of a pure passive model would be writing an eBook and placing it for sale on KDP; no further activity is required, though of course you can if you wish. In contrast, an example of a semi-passive model would be growing a forum community, establishing a management team, and electing to oversee operations at regular or irregular intervals. To any newcomers reading this, your goal in IM should be to possess a portfolio of IM properties, where, by diversifying the types of models that define your different properties, you can reach a level of efficiency dictated by your involvement, whilst also, as a byproduct of diversification, promoting levels of financial security and growth. To learn more about passive income models, don't wait for someone on WF to spill the beans. Simply hop on Google. As Mulder would say, The truth is out there.

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  • Profile picture of the author Rob Aseto
    This argument over semantics will forever be going on.

    Some people scoff when they hear the word "passive", and they think "what I do is anything but passive!!!".

    However, the point is that once the "system" is created (which does require a large initial time investment), the "do work" and "get paid" actions are independent from one another.

    - You may get paid while you are asleep or on vacation
    - You may spend 12 hours working on your site one day, but not get paid at all

    This, in my opinion, defines what passive income is to me.

    Another poster also mentioned scalability...that's another perk of the passive income model!
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    • Profile picture of the author Frank Donovan
      Originally Posted by Rob Aseto View Post

      This argument over semantics will forever be going on.
      Of course. Especially when you start a thread claiming to define it.
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      • Profile picture of the author Rob Aseto
        Originally Posted by Frank Donovan View Post

        Of course. Especially when you start a thread claiming to define it.
        .
        My reasoning for making this thread came from other people claiming that my suggested model that I gave in another post is not passive income.

        Tough crowd around here .
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        • Profile picture of the author Sid Hale
          ????

          Originally Posted by Rob Aseto View Post

          My reasoning for making this thread came from other people claiming that my suggested model that I gave in another post is not passive income.
          So you were afraid that not enough people were seeing that in the other thread? or that giving your opinion its own thread somehow legitimized your opinion?
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  • Profile picture of the author Ploppi
    I can see how if someone is mega wealthy and has money making money from interest by sitting in a bank or property investments etc. Thats easy when one is wealthy and money makes money. For people with no money or very little how would a passive income come about without a lot of work and time invested for no pay to begin with?
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  • Profile picture of the author dvduval
    I think you can have some forms of passive income that are low maintenance, but you still have to work to reach that point, and from time to time you will need to do more work. In my case I built software products that involve subscriptions paid monthly plus residuals from credit card sales by my customers (in many cases). Assuming the software is running smoothly for my customers I am getting passive income. However, some customer need my help and it is my job to make sure they get it. Again, I have plan for this too. I have employees who help the customers, and usually the customers pay for the that help with a little profit built in (so more passive income). But the employees need to do a good job, and it is my job to make sure they do, or else find other employees.

    Even when it comes to investments, they are not completely passive. You have to rebalance your portfolio every so often or it will not perform as well (or worse). That being said, one of the leading economists of our day has pretty much proven that investment income grows at a faster rate than wages (read Capital by Thomas Pikkety). The hardest part is positioning yourself to be free of needing to work for wages.
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  • Profile picture of the author durgaprasadzone
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    • Profile picture of the author Zodiax
      I'm going to go out on a limb and say passive income is harder to make than 'active income', and that very few people are capable of making it.
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      • Profile picture of the author Rob Aseto
        Originally Posted by Zodiax View Post

        I'm going to go out on a limb and say passive income is harder to make than 'active income', and that very few people are capable of making it.
        Agreed!!

        But once you have a basic understanding of it, it's a hell of a lot of fun to work with and opens up a million doors of creativity!!
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  • Profile picture of the author kurttasche
    That's a great way to look at it.
    Thanks for sharing.
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  • Profile picture of the author Randall Magwood
    As long as i dont have to work a job again.... i'm very happy with the passion income, income model. I'm sure most people hear would agree.
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  • Profile picture of the author quadagon
    Until January this year I ran a side business which generated passive income. My plan when creating the business was to have a business that after the initial phase I could leave alone (possibly forever).

    To do this there are certain requirements:

    A profitable market with competition It's no use being the only dog in the fight. Part of passive income is leeching customers off competition.

    A market which replaces itself at the end of a life cycle

    Universal search terms (knowing that the market will search the same terms year after year is invaluable). With this its set and forget on the website/YouTube videos and social media.

    Buyers who will buy buy than one product.

    I researched like crazy before settling upon the niche I eventually went into. In this niche:

    • There are three big competitors
    • Every year there are 700,000 potential new customers
    • On average each customer buys three products
    *There are on average 2 customers a day. With two large spikes in the market

    Amazon sells all the books through KDP, promotes my other books and handles all transactions.

    All I did with the business was once a year put a book on free promotion and once a year file my accounts.

    That's about as passive as I could get it. Probably 3 hours work a year and a 6 figure income.
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  • Profile picture of the author Jack Malibaba
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    If i can setup or do something once, then can earn for a long time

    that's enough for me to call that is passive income

    Just keep it simple!
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  • Profile picture of the author agmccall
    Originally Posted by Rob Aseto View Post

    Here is the definition of passive income as far as I'm concerned:

    Passive income is income that is made without you needing to be present at the time in which it is earned.

    Active income, on the other hand, is income that is earned via the "earn X amount for X amount of work" model.

    Neither are truly "passive". Of course you will still need to do work in order to generate income. However, by setting up a "passive income system" (such as a website where you have a product(s) for sale), you have the abilities to earn income while you are away from your computer.

    After the system is correctly setup, you could completely stop doing work altogether on it, but you will still have the potential to earn income (via people visiting your site and making a purchase).

    Yes, you will likely need to add fresh content to the site as well as maintain it. However, if you wish to take an extended vacation, you can do so without cutting off the income flow.

    So no, "passive income" is not truly passive, but it is a different means of income generation then the more well-known and generally accepted "active income" model (ie. Working a normal job).
    blah blah blah blah blah, Who really cares. Income is income no matter what you name it

    al
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    • Profile picture of the author Rob Aseto
      Originally Posted by agmccall View Post

      blah blah blah blah blah, Who really cares. Income is income no matter what you name it

      al

      Cool stuff:

      http://www.stevepavlina.com/blog/category/passive-income/
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      • Profile picture of the author evawater
        Passive income is an income received on a regular basis, with little effort required to maintain it. It is closely related to the concept of "unearned income". Income into three broad types, active (earned) income, passive (unearned) income, and portfolio income.
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        • Profile picture of the author Steve B
          I think the goal of developing a "set it and forget it" business is only for those who desire free time over money.

          If you can set up a system where you can earn without touching the business for years . . . there is no doubt in my mind . . . if you applied work to that same system you could make a lot more money than you gain by doing no work.

          Isn't that the objective of nearly all business? To grow the asset, grow the income, and increase the worth of the business?

          Case in point: If you write a book, publish to Kindle, and never touch it again, theoretically you can earn income from that action for years. But how much more income would you see if your actively promoted that same book, updated it with the times, and wrote other books to complement it?

          If you don't care how much money you make then maybe you can get by with a "set it and forget it" approach. But if you want to maximize the asset that your business will become, you'd better give it some regular attention. There are always web sites that need updating, fresh content, and inclusion of new methods and technology in the niche. There are always customer questions and help that you can't ignore. How do you run a business without paying attention to ongoing needs?

          If the answer is to pay someone else to handle all those things . . . then your time is more valuable to you than the money.

          Steve
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          • Profile picture of the author Rob Aseto
            Originally Posted by Steve B View Post

            I think the goal of developing a "set it and forget it" business is only for those who desire free time over money.

            If you can set up a system where you can earn without touching the business for years . . . there is no doubt in my mind . . . if you applied work to that same system you could make a lot more money than you gain by doing no work.

            Isn't that the objective of nearly all business? To grow the asset, grow the income, and increase the worth of the business?

            Case in point: If you write a book, publish to Kindle, and never touch it again, theoretically you can earn income from that action for years. But how much more income would you see if your actively promoted that same book, updated it with the times, and wrote other books to complement it?

            If you don't care how much money you make then maybe you can get by with a "set it and forget it" approach. But if you want to maximize the asset that your business will become, you'd better give it some regular attention. There are always web sites that need updating, fresh content, and inclusion of new methods and technology in the niche. There are always customer questions and help that you can't ignore. How do you run a business without paying attention to ongoing needs?

            If the answer is to pay someone else to handle all those things . . . then your time is more valuable to you than the money.

            Steve
            It is passive income, regardless of whether you actively maintain and update the buisness, because the acts of "doing work" and "getting paid" are independent from each other.
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            • Profile picture of the author Steve B
              Originally Posted by Rob Aseto View Post

              It is passive income, regardless of whether you actively maintain and update the buisness, because the acts of "doing work" and "getting paid" are independent from each other.

              Your opinion only . . . there is nothing passive about maintaining and updating a business. Maybe you're never had one?

              In my mind, "doing work" and "getting paid" are never independent of each other.

              If they were, everyone would choose "getting paid" and never "doing the work" . . . the classic formula the scammers push on the unsuspecting because it sounds so easy and wonderful.

              We all know that real business is not done in that manner.

              Steve
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              • Profile picture of the author Rob Aseto
                Originally Posted by Steve B View Post

                Your opinion only . . . there is nothing passive about maintaining and updating a business. Maybe you're never had one?

                In my mind, "doing work" and "getting paid" are never independent of each other.

                If they were, everyone would choose "getting paid" and never "doing the work" . . . the classic formula the scammers push on the unsuspecting because it sounds so easy and wonderful.

                We all know that real business is not done in that manner.

                Steve
                Not just my opinion. It's actually a different type of income then the traditional "do X amount of work (or work for X amount of hours) for X amount of money".

                Whether you want to refer to this other type of income as "passive income" or not, it is a fact that the model that we are all referring to is a distinctively different model of generating income.

                It's just simply helpful to give it a label so we can discuss it over the Internet. However, some people get angry when you label it as "passive income", and then the discussion turns into an argument about silly semantics instead of discussing the model at hand.

                Steve Pavlina was the first person to open up my mind to this model, and ever since then, my primary goal in my financial life has been to earn passive income (or whatever else you want to call this particular means of earning money in which time and money are not directly proportional to one another).

                With regards to IM, you can earn money:

                1.) Actively - freelancing, coaching, etc. (fiver, elance, Skype meetings)
                2.) Passively - Setting up systems that generate income without you needing to be present (websites that have products for sale on it that can be auto-delivered, etc..)

                Point being, it's useful to give things labels to make communication easier.
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                • Profile picture of the author Frank Donovan
                  Originally Posted by Rob Aseto View Post

                  It's just simply helpful to give it a label so we can discuss it over the Internet. However, some people get angry when you label it as "passive income", and then the discussion turns into an argument about silly semantics instead of discussing the model at hand.
                  I don't see anyone in this thread getting angry. All it's shown is that there are different conceptions of the term "passive income", and therefore potential misunderstandings of the work that's actually required to create and maintain a passive income business.

                  Whether you want to refer to this other type of income as "passive income" or not, it is a fact that the model that we are all referring to is a distinctively different model of generating income.
                  I find it funny that people seem to believe all business ideas began on the internet. The model you refer to as being so different has been around since commerce began. It describes the activity of (among others), publishers, authors, songwriters, landlords and anyone in the business of renting out stuff or charging for memberships. The internet may offer lower entry costs and a wider potential reach, but it hasn't done away with the need for a well-planned set-up, and an attentive and ongoing maintenance system.

                  Online or offline, if you want truly passive income, build up your business, sell it for a fortune and live the rest of your life on the proceeds.
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  • Profile picture of the author reachintan
    Passive income is all about generating lifetime residual income every month.

    Do check out this article How to Make Money Blogging - Guide for 2015 to get going making passive income online.
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  • Profile picture of the author Brent Stangel
    Of course. Especially when you start a thread claiming to define it.
    Passive Income: Your Uncle Fred sends you a big check every month, like clockwork.
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    • Profile picture of the author Rob Aseto
      Originally Posted by Brent Stangel View Post

      Passive Income: Your Uncle Fred sends you a big check every month, like clockwork.
      Uncle Fred is the man!
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  • Profile picture of the author answergal
    I don't think there's any such thing as passive income, except, as most people are saying (and it's true) that some things are "relatively" more passive than others.

    Work 8 hours and 10/per and you get 80 bucks. Result is not directly linked to how passive or not you were during those 8 hours (unless you're on a trial basis, haha).

    Work 8 hours building your own business (offline or online) and you can make zero, or you can make 180 bucks. If you're happy with the 180, you can find a way to do the same thing in 2 hours and make 10x the amount =1800. You'll never cut it down to zero hours, but the real key with "passive income" to my way of thinking is that you could take the 180/day to 1800/day and more even while you're doing LESS work.

    That's a relatively passive model and it happens every day with online business especially, because digital product is so easily scaled up. ie., it takes no more work to sell 1000 ebooks at 7/per than it does to sell 1.
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  • Profile picture of the author vikash_kumar
    For me, Passive income is the income which gives me time freedom.
    If a project gives me freedom to work at my own slot of timing then its a passive income for me.

    In my opinion, Blogging is such an income where it is my choice when I want to work and how much i want to work.
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    • Profile picture of the author Rob Aseto
      Originally Posted by vikash_kumar View Post

      For me, Passive income is the income which gives me time freedom.
      If a project gives me freedom to work at my own slot of timing then its a passive income for me.

      In my opinion, Blogging is such an income where it is my choice when I want to work and how much i want to work.
      Yup exactly!
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