Saturday, October 18, 2008

Passive Income is not Effort Free

To some personal finance bloggers, passive income is the holy grail of making money. By definition, passive income includes dividend, interest, internet advertising and rental income and the impression is that no additional work is needed once the the stream of income is developed. While I like concept of additional sources of income besides a job, I disagree with this perception of passive income. Maintaining a sufficient passive income to support oneself can take signficant work, although a different type of work than earning a wage.

For me, a better description would be the term "non-wage income," since the income is not coming from one's day job. Non-wage income has many advantages, including no boss, no co-workers and flexible hours. Its main disadvantage is the variability of income stream, which can differ significantly each month. Reducing the variability and increasing the certainty of non-wage income stream takes a lot of effort, which can include research, due diligence and frequent income reviews. However, by ensuring the lower range of the income stream is above salary income, one can choose to live entirely on non-wage income.

For reference, I believe the only true passive income is a pension or social security. However, even the certainty of this income is not guaranteed in today's economy.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial advice. Please consult a professional advisor.

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1 comment:

DINKS said...

Amen to that! Especially in the beginning phases of a project bringing in passive income - aka blogging.

once you get the boat rolling, it's a bit easier to bring in larger amounts, but nonetheless requires much more effort than "none" ;)