It sounds fantastic, does not it? The very idea of a stream of income that is passive is incredibly attractive and seductive to any thinking person. But just what does passive income really mean? Definitioins of the term "Passive income" on the Web vary, but my personal favorite is found at Wikipedia which seems to cover most bases.
One obvious example of passive income is the interest accrued by a savings account – this is all very well while you have savings in place, but the problem with this kind of income is that that it is residual, meaning that in order to maintain the income stream , only the temporary part can be used. If you fall upon hard times or the interest rate drops dramatically you might have to start spending your lump sum, then of course the passive income disappears along with your savings. Not an ideal situation and it demonstrates the fragility of residual income.
The best kind of passive income then is continuous and does not rely on a lump sum. Once the wheels have been set in motion then no further action is required for the income to be generated, or as the Wikipedia definition states; "without continuing effort" – Quite simply, it happens all by itself! Sounds good to me, but how is that kind of passive income model created?
There are a number of ways, but probably the most well known are royalty payments earned for creating popular songs or best-selling books. We've all heard of the massive royalty cheeches received by songwriters and top authors. But hang on a minute; does that mean you have to write a hit record or a bestselling novel in order to generate passive income? Well, if you have the talent, along with the patience and sometimes a bit of luck on your side, then by all means go for it. However, most of us fall short of one or more of the required criteria, and the number of people approaching a living through this kind of passive income alone are in the minority.
One thing that can not be overlooked is work. Do not be fooled into thinking that just because your time is not directly traded for cash that no work is required on your part. In most cases a great deal of time and effort has to be expired before even the smallest amount of passive income is realized, and this kind of 'up front' work without any obvious instant rewards will put many off before they even get started – after all; who wants to spend their evenings researching and writing articles for a website when they could be out socializing or relaxing in front of the TV? Only the very dedicated, I believe.
However, the Internet, or more specifically; the World Wide Web offers up opportunities for the passive income seeker that would have been unheard of not so very long ago. Many unseen and unknown Website owners are silently raking in huge profits as a result of allowing advertising on a popular site. Imagine the opportunity of PPC (Pay Per Click) advertising on a site that pulls in 100,000 visitors per day, or the fee that could be ordered for a prominently placed banner on such a site. That kind of result surely justifies any amount of up-front work? Let's not forget that although a successful Website requires continuing to work to remain popular so it might not be considered the perfect example of a truly passive income stream model.
Some passive income streams can also be very small, requiring a combination of streams to make up a full time living. This can again be seen on the Internet when a webmaster has a number of Web sites each making a small amount of money from advertising (most recently AdSense has been the favorite) – In examples such as this it is the combined force of these smaller revenue streams that make up the overall income. On the face of it, this is not such a bad idea when you consider that if one of the sites fails it does not have a major effect on the overall earnings of the site owner, thereby avoiding financial catastrophe. For the belt and braces approach a number of different advertisers would also be combined, so that (as in this example) AdSense is not the only source of revenue.
The conclusion is that passive income despite desirable to most in theory, will require some up-front effort to achieve, and not everyone has that discipline. For the person that is both disciplined and determined there are different ways of creating passive income streams and the World Wide Web offers one of the greatest opportunities of our time including the possibility of drawing income from a number of sources and combining them together into one larger sum – this is the model used by many successful AdSense devotees. However, it has also been seen that it is not always wise to put all of our eggs into one basket, and that a combination of different income streams could have the sensible option long term to cover the expenses necessary for living a fulfilling lifestyle.
Passive income? Yes please!