Once we become adults, the aim of our life is to earn a livelihood. And for that, we have to go out and give interviews, hunt for a job, stick to it, sweat it out to make more money, and climb the hierarchical ladder. How much easier it would be if we could sit back and relax, and somehow get income from somewhere that wouldn't require us to do all this running about. Wouldn't that be just perfect? But is that possible? Let's find out
Defining Passive Income further
There are two kinds of income – active and passive income. Active income is self explanatory. It is a source of income where you are directly involved in making money, like a job. Passive income, on the other hand, does not require you to be directly or actively involved in earning it.
For instance, money that comes in to you from a rented property, royalty that you get on an invention, or your association with a limited partnership. Basically, passive income doesn't include earning wages, like you would in a normal job. There are two kinds of passive income – residual and leveraged income.
Types Of Residual Income
Residual income is recurring revenue that comes from sources that you may have already developed in the past. It could also be an income from a business that you are no longer an active part of and you have hired an assistant to look after it.
Some examples of residual income:
• The commission earned by an insurance agent when one of his customers renews his policy.
• The income of a network marketing agent when his/her direct customers reorder a certain product.
• A consultant who writes an e-book on a certain subject and sells it online
Leveraged Income
Leveraged income is revenue that is generated when people other than yourself are leveraged to make income for you. This way, you aren't working as much as they are, and they happen to generate the income for you. Some examples are:
• A contractor who leases the work to sub-contractors and makes money from the profit margin
• Giving entrepreneurs and businessmen an opportunity to open a franchise based on your business model.
For more on passive income and financial goalsClick on our setting financial goals page
Victor is the creator and editor of settinggoals101.com, a detailed website that provides tools to help you set and successfully achieve your dreams. Setting Goals 101 is your road map to more effective goal achievement.
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