Ideas for Passive Income

Most of us know that any amount we earn is an income. Usually, we work in order to make money and the longer we work, the more money we have. But when we make money also because of our money, we might think that it is a business. This concept is a bit more general. If we become more specific, we should call this kind of income passive income. Passive income is not the payment for hourly work. It is the product of our labor and investment. Sometimes it is called residual income.

Passive income is the most ideal income that everybody wishes to enjoy. It is due to the fact that we earn with less effort. Our energy as human is limited. We depend on the income based on the equivalent energy we exert. We have learned in school that everybody should have some ideas about any kind of work in order to earn. Later in our life, we realize that the important ideas which we should have are the ideas for passive income.

Those people, who are not satisfied with their present income they receive from work, should seek some ideas. There are many income ideas that we may try. Small businesses can give us an income. The problems that we always encounter are the difficulty in making a decision on what to invest, when and how to do it. In other words, we should also invest in ideas. To learn something may be costly. But the result of what our ideas can bring about is significant.

Small business like a start-up restaurant is one of the most common ideas for passive income. At first, you may handle it yourself to set it up and to make sure that it is operating well. You can gain experience as well. But you won’t have to be the one to cook or serve the customers. In fact, you may hire somebody who can supervise the operation. Investing in people is the key to a great income. All you have to consider is the credibility of the people that you are going to hire. Trusted people in your business can assure you of your income. However, if your restaurant is too small, you will really need to become hands on. In that case, your business is still at the first stage of setting up your income. If your restaurant has been inviting a lot of customers, you may invest in additional people. Investing in people is better than investing additional time. It is irrational to waste your time and energy if your restaurant profit can afford cover the overheads. Let your restaurant grow as a separate entity and keep your free time available so that you can still have some leeway to consider some more income ideas.

Retail business such as a convenience store or a pharmacy is almost the same as a restaurant. These are also some of the most common ideas for passive income. At the start-up stage, it requires your time and control. As it grows, you begin to be free. If your store is located along consumer traffic, you will surely need to invest in people who can serve all your customers. You should calculate its monthly sales against the inventory. Nowadays, it is not so difficult to do that because most stores use POS software. It will help you monitor the off take of your goods and the cash flow every day. There is no need to manually count the bills and the available stocks. Periodically, you must also make a physical inventory. But this is very seldom. Meanwhile, if your retail business is performing well, you should branch out because it is risky to depend on only one store unit. In the event that the location of your business becomes a worse environment for doing business, you might as well close down your retail outlet. However, if you have several branches, the risk is divided and reduced. Each of your store branches is considered one single portfolio. So, expanding your portfolio is one of the best ideas for passive income.

Three Different Types of Income – Which One You Are Working on?

There are THREE different types of income. We need to understand the different types of income that are possible and then make specific and deliberate changes to what we are doing now.

Firstly, Linear Income
Here, you exchange your time for money. The more money you want to earn, the more time you need to give up. If you are employed, then you are earning linear income. As an employee, if you want to earn more, you have to work harder and sacrifice more time. So with linear income you can never have time and money since the more money you make, the less time you will have.

The problem is, there is a limit to how much you can earn based on time. If you were to stop or fall sick, your income also stops. This is a very fragile income source with little security. Unfortunately, this is where almost all of us are situated, particularly wage-earners.

The same concept applies for some businesses. For example, if you are in the business of selling water filter, then every water filter you sell will earn you an income. The more time you spend selling water filter the more money you make. This is an example of a linear income.

Secondly, Residual Income
Residual income is income you make from initial efforts. You put effort in an area and then you continue to reap an income thereafter for a certain time – which can even go on forever. Artists will continue to earn a royalty from future sales of their music albums or from people singing their songs; even if they can’t perform anymore. Another example would be royalties earned by writers every time you buy their books.

In business; picture this: you initially spend time to build up the relationship with your potential customer. Once the customer uses your products or services, he is happy and comes back for more. The second time round, you probably will not need to spend as much time servicing the customer in order to get the second order. If you have a quality consumable product, your customer will always come back for more. You work less but still earn an income. This is called Residual Income, or as some call it Recurring Income.

So back to the water filter example; imagine you have sold 10,000 water filter and your water filter has a consumable part that need to be changed periodically such as the filter itself. Then all you need to do is to sit in your office and wait for phone calls from your 10,000 customers wanting to change their water filters. The printer companies don’t make the bulk of their money selling you computer printer; they make more from selling you ink cartridges.

By having residual income, you are actually leveraging time. You spend less time and earn more money. The question then is how to find residual sources of income. When you are in business, as Paul Getty says, you must have unique highly consumable products. Why? Because these products will be able to give you residual income.

Thirdly, Multiplex Income
The most exciting source of income, the multiplex income, is perhaps the best way to leverage your time for creating wealth. Multiplex income is earned from the efforts of others.

You want to be able to earn $1 from 100 people rather than earn $100 from your own time. Now, why would anyone give you $1? So in the water filter example, if you have 100 people selling water filter for you and you earn a cut from every sale, then that would be multiplex income.