You’ve heard of passive income, right?
No? Oh you are going to love this…
Would you like to be given £10 a month? No questions asked?
What about £50? £100? £200?
Have I got your attention now?
Wikipedia defines passive income as:
“income received on a regular basis, with little effort required to maintain it”
Sounds too good to be true, right?
So what is passive income?
Our aforementioned friend Wikipedia gives some examples of passive income:
- Earnings from a business that does not require direct involvement from the owner or merchant;
- Rent from property
- Royalties from publishing a book or from licensing a patent or other form of intellectual property, such as computer software product
- Earnings from internet advertisements on websites
- Dividend and interest income from owning securities, such as stocks and bonds (although this is sometimes referred to as portfolio income)
- Well, put £10,000 in a bank account paying 5% and (give or take a few pence) it will generate £500 a year in interest. That interest is being generated whether I’m asleep, out walking the dogs, watching TV, researching share tips, eating my lunch or sitting on the toilet! And remember, if left in the account, that £500 will earn £25 interest the following year. That’s compound interest for you (note to self – write an article on compound interest).
- Buy £1000 worth of RSA shares paying a 7% yield and every year they will generate £70 in dividends (usually split between two dividends a year, an interim dividend and a final dividend. But in some cases, quarterly or even monthly with some unit trusts).
- Build a website and persuade an advertiser to place an advert on it (yes, the website probably will need some maintenance throughout the year, so perhaps this kind of income isn’t passive in the truest sense of the word).
- Write a book that gets published and sit back while the royalties flood in (if you are lucky).
I love the idea of putting some money somewhere, or carrying out a task and forgetting about it while the income comes in month after month, year after year. Don’t you.
And don’t dismiss a few quid here and a few quid there as insignificant. Read the excellent Monevator blog “Why a little passive income from a side project is worth a lot more than you think” to see why I say this.
Most of us have to work for a living. Work to generate an income. So getting an income without having to work for it sounds perfect doesn’t it.
I remember going for a job interview once (yes, I once had to work for other people you know). In the interview the chap was opening envelopes (yes, it was a strange interview). Nearly every one contained a cheque from some company or other. They were all royalty payments or referral payments. Apart from the initial work he (or one of his staff) had done, some time ago, he wasn’t doing anything to generate this income.
Incidentally, I was offered the job. Did I take it? No. I thought about what I had learnt during the interview and I started generating my own passive income – and that was about 7 years ago. That income is still coming in now.
I really should write an e-book on the subject. It would be worth £10 right? Kerching. More passive income.