You hop on a flight to Brazil or Costa Rica or Thailand.
You spend a month reveling in the sand and surf.
You taste new foods.
You discover new music.
You spot wildlife you’ve never imagined.
You don’t check email the entire time.
Heck, you don’t even post photos to Facebook.
You’re radically offline — like it’s 1972.
You return to your home country., check your bank account, and notice your balance has grown while you’ve been away.
Sound like a fantasy?
This can be your life — if you create self-sustaining passive income.
Passive Who? What’s Passive Income?
If you’re not familiar with passive income, let’s rock the definition:
“Passive income” is money that flows into your pocket while you’re sleeping.
Or eating guacamole.
Or defying the laws of science by doing both at the same time.
When you’re collecting passive income, your money is wildly disproportionate to the hours you work.
Actually, “disproportionate” isn’t the right term: it’s un-proportionate.
Your income loses correlation to your hours.
At any other job, you trade time for money.
This is “active” income.
Active income is the status quo of the default world, and you can hear echoes of this in everyday conversation:
I charge $230 per hour.
He makes $78,600 per year.
She earns $4,250 per month.
These statements reflect the time-for-money trade.
The more hours you log at the office (or the home office), the more money you make.
Passive income shatters this association — as it should.
Time is limited; money is infinite.
Time is precious; money is abundant.
It makes no sense to trade time for money; it’s unsustainable.
“Sounds great in theory, Chris. But I need to pay the bills.”
Of course. Unless you’re Paris Hilton, you’re forced to trade time-for-money in the beginning — but this is a stepping stone.
Trading time-for-money is temporary.
Unless you’d like to keep trading time-for-money forever?
Yeah, I didn’t think so.
“Great. So if I want to create passive income — I just snap my fingers, and voila, it appears?”
Nice try, buddy, but no.
Creating passive income means embracing upfront work, to build self-sustaining riches down the road.
Ramp up, so later you can ramp down.
Passive income isn’t “something-for-nothing.” This isn’t the lottery, and it’s not a get-rich-quick scheme.
You’re planting seeds, so you can harvest.
“What are some examples of passive income?”
A few examples include:
- Rental income
- Royalties from books, music and other creative works
- Income from businesses you own but don’t operate
- Peer-to-peer lending
- Dividends from stocks and ETFs
“Can you give me specific examples?”
- If you’re the Rolling Stones, that track that you recorded for (I Can’t Get No) Satisfaction creates passive income every month, even though you recorded it years ago.
- If you’re Miley Cyrus at age 58, you’re still collecting royalties for … (ugghhh. Actually, we’re just going to end this sentence here.)
Real estate is my primary passive income tool.
“But real estate isn’t passive, is it? You have to buy the house, and that takes work …”
In the beginning, you invest time (and some money) but don’t earn any immediate income.
This feels like the worst of both worlds, and this is why the majority of people — the Conformists — shy away from passive income investments.
(The Conformists, unsurprisingly, are also stuck in 9-to-5 jobs for 40+ years. The key word is “stuck.” They’re not choosing to work because they love their job. They’re forced to work to buy groceries.)
Let’s assume that you decide to build passive income through rental property investing.
At the start of the game, you’re:
- Reading and learning about investments and businesses
- Hunting for properties
- Analyzing deals
- Negotiating and closing deals
- Renovating and repairing properties
- Building your team — hiring property managers, contractors and other support staff.
After a few months, you rent the property, and BAM — the hard work pays off.
You get your first rental deposit. Cha-ching!
At this point, you’ve experienced two phases:
- Active: Work, but no income. Your friends think you’re nuts.
- Passive: Income, even though it’s been weeks since you last did a shred of work on this project. Your friends are jealous. “Must be nice,” they gush.
At this point, you have two choices:
- Option A: Kick back and enjoy the fruits of your labor. You’ve built systems, hired a team to run your business, and now the checks are rolling in. Passive income will flow into your bank account, with little-to-no input from you (less than 1 hour per week).
- Option B: Squeeze more juice from this orange (er, “optimize your investment,” in corporate-speak). Embrace optional work that can bump your rental prices and stick even more money into your pocket.
If you choose Option B — and remember, it’s a choice — you’re playing in the space on the graph between the two dotted lines. You’re in the space where the x-axis, representing time, starts moving horizontally again, while our payout, the y-axis, also grows in lockstep.
At this point, we’re doing things like:
- Swapping out an “okay” fixture for a “wow” centerpiece
- Staging the unit with furniture and fresh flowers, for an impressive showing
- Snapping amazing Pinterest-worthy photos of the rental unit
- Writing a damn good advertisement for Craigslist.
The Difference Between Active and Passive
Contrast this with the traditional employment model, in which you’re paid by the hour or year.
If you quit your job, the paychecks stop.
The time-for-money trade is limiting.
You have 168 hours per week, and every hour you devote to working is an hour you can’t spend making guacamole and drinking pineapple juice.
Passive income, by contrast, is unlimited.
Once you’ve wrapped up one project, you can move onto the next — and wealth starts to pile.
That’s the ultimate difference between active and passive income.
- Active income rewards endlessly trading time-for-money.
- Passive income rewards upfront work, so you can create self-sustaining rewards.
P.S. — I’ll be launching a real estate course in November. Hop on the VIP Early-Bird List to get involved in the creation, hear early announcements about the release, and get special access to pre-launch goodies.
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