You have heard about passive income but what is passive income. There are a lot of myths about passive income and these come from websites and various youtube channels.
Well lets see what wikipedia says about it
Passive income is income resulting from cash flow received on a regular basis, requiring minimal to no effort by the recipient to maintain it.
Passive income differs from earned income and portfolio income in a variety of ways. Passive income is generally defined as a stream of income earned with little effort, and it is referred to as progressive passive income when there is little effort needed from the individual receiving the passive income in order to grow the stream of income.
That is a perfect definition in my book which describes exactly what passive income is.
Examples of passive income.
The best way to explain passive income is to show you some examples of it
You invest $1000 in a bank savings account with 2% interest. The interest you earn is passive income.
You invest $1000 in P2P lending. The interest again is passive income.
You take photos and upload to a stock photography site. Any sales taht you earn fall into the criteria.
You have a niche blog, you put ads and affiliate links. the revenue generated again is passive.
You upload artwork to print on demand sites (T-Shirt) and set a price – you will recieve a cut of the sales.
We will talk about these examples and others on this site in more detail in future articles.
Now we will explain some of the confusion around passive income and this is from websites and youtube videos that I have watched over the year.
Passive Income myths and confusion
There are some issues with Passive income that many sites do not mention at all or at least do not highlight strongly enough in my opinion. Lets look at a couple of these.
High initial investment in certain examples :
To live off P2P lending income you would need to work out what the return is based on the interest rate offered. Lets say you need $20000 a year to live off, the interest rate being offered is 10% – thats a $200000 investment, and thats the best case scenario. People seem to think that you can live off and replace your day job but in many cases this is not the case as you need a large investment.
Hidden costs :
Lets pick out the blogging example first – You start blogging, you put up some ads – watch the moolah coming in. What is not stated at times is you may need buy a domain name, buy some decent hosting and maybe a also purchase a good wordpress theme. Thats just for starters and this may cost in the region of $100, not a huge sum of money but its not free like a lot of people make out. You may need to make an initial investment.
Diversify your passive income streams :
You should always try and have as many passive income streams at the same time, you publish an ebook, now start a niche blog – you finish that then start a T-Sshirt design store. Once you earn some revenue invest in P2P lending. Do not focus on just one income source, I’ve seen “gurus” telling you to focus on one thing like dropshipping – the problem is that they are doing this for a reason, usually to flog some training course or ebook.
Cryptocurrency investing seems to draw a lot of these experts out as well.
Be sceptical about Youtube authors:
If I had a dollar for every video I had watched on Youtube that would be passive income in itself. Some of the advice is total b.s but i would advise you to look for the Income School videos and playlists, it is the most honest series of videos on niche sites and money I have watched on Youtube.
I may add an article with recommended channels in the future, in fact if I get the time I may start my own channel. Just be wary about some of the “advice” on there.
Summary
In summary there may be initial costs – its difficult to start from nothing – you may have to look at other methods to generate that extra few dolars first to get things started. Look at the definition at the start of this article, there are 2 key phrases and these are “cash flow” and “minimal to no effort”.
Also be careful of people hawking products promising you will make $insert doaller here in insert days here. Quite often the only person getting rich is the author