Passive Income
The term passive income is a misnomer. Passive generally implies being "inactive". A more correct phrase for passive income would be "work a lot upfront, then relax Income". Passive income, like any other form of income, must be developed carefully. The advantage is that once the upfront effort is complete, the ongoing effort will be much less (not zero, but less). The simplest example of passive income is through existing capital. If you have money to invest, you can:

1. Put money into CDs or Bonds
   
   
2. Invest in dividend paying stocks
   
   
3. Buy shares of Real Estate Investment Trusts
   
   
4. Invest in Income Oriented Mutual Funds

and many more vehicles. But of course if you have money, then there is less to do anyway!

A textbook example for passive income is Rental Property. You purchase a house or apartment, and then rent it out. The rent should be enough to cover your mortgage, taxes and ongoing maintenance of the property. The remaining cash becomes your passive income (hence sometimes called as residual income).

Patenting an Idea and getting paid through licensing of that idea is another passive source of income, though not nearly as easy to succeed in. It is far easier to make a deal with a manufacturer and share in the profits than to simply license the idea for income.

Writing books, and nowadays -e-books, is another potential source of passive income, once your book is on the market and selling well. In reality though, there is ongoing work in each of these cases - maintenance, marketing, sales, and accounting - and so forth is required to keep the stream of income coming in. But at least the major upfront effort has been expended, and you do not have to put in the same type of effort again.

 

In a larger context, all entrepreneurs make their businesses into a source of passive income. That is, they set up their business such that it can run without their direct involvement. They see it as a product which when in operation, throws off free cash for them, without any effort on their part. So potentially, any business could be seen as a source of passive income, if positioned correctly.

 

Leveraged Income

Leveraged income refers to income from activities that can deliver value to either one person at a time or to a large group of people at the same time.

Consider a conference where the marketing experts of the day are all lined up to speak. Such a conference can be organized for a select group of individuals, say 10, or to a very large audience of a 1000. Though there is more work to handle 1000 people, 80% of the work is the same as for a group of 10. You would need to get a venue, arrange dates with the speakers, pay for their travel and accommodations (not to mention their fees), arrange for microphones, projectors and other tools of delivery and so on.

For the organizers of the conference it is thus more profitable to have more people register for the conference (and pay the registration fees).

The examples of a fitness trainer, a private tutor, baseball coach etc. similarly all fall in the category of leveraged income.

What about an Information Website? Is it passive Income or leveraged Income?

It falls under leveraged income, mainly because an information website cannot go stale. That would be the death knell for the site. So there is work involved in putting new information out there. But the work required is the same whether it is one subscriber or many.

 

Where should you concentrate your efforts?

Either of these sources is great to have. It is generally a little easier to develop leveraged income than passive income. A suggested strategy would be:

1. Develop a skill in an area where you can deliver direct value to one or more individuals
   
   
2. Craft a means of delivering this value to a large group (classes, conferences)
   
   
3. Establish yourself as an expert through marketing and the delivery of real value
   
   
4. Write a book or develop a video on it and set it up as a source of passive income
   
   
5. As your business expands, train other individuals to take your place. Institute profit sharing or have them as employees.
   
   
6. Develop your business processes such that this business is now a source for passive income for you!

Passive Income is indeed your ultimate goal - most easily achieved through existing capital, but if not, then use your skills to develop leveraged income which can then be your source of passive income for a long time to come!