The thought of making passive income is just magical to me. The suggestion that I can just lie around and do absolutely, positively nothing and earn money at the same time just seems so great that it ought to be against the law. And still, people are doing it on a daily basis, and with no ill effects. In truth, people have been doing this for a long time - decades, actually.
residual income
For starters, we most likely need an understanding of what passive income is. The fact of the matter, however, is that pretty much everyone has his or her own definition of the term. Personally, I tend to think of passive income as income that does not require the earner to have an continuing role in revenue generation. That's not to say you have no role (although you may not); it's just that active participation can be limited.
By way of example, consider a pilot who has to fly from Hawaii to Los Angeles. Prior to leaving, he is fully engaged in handling the plane, going down the runway, and so on. However, once the plane is airborne, he can set the autopilot; the plane only really requires his involvement at takeoff and landing. (In other words, setting it on automatic let's things go into "passive" mode.) Likewise, there is limited involvement (and sometimes none) by the individual making the money in passive income activities.
Also, while I frequently use the terms interchangeably, this is slightly different than residual income. Residual income typically refers to money being generated by some initial work effort, but which does not necessitate continued participation by the income earner. A prime example of this could be writing a book or a song. The initial writing effort will produce on-going revenue without the writer having to do anything else. Thus residual income actually can be viewed as a type of passive income. (Dividends - which I was referring to in the first paragraph above with respect to earning passive income for decades - can also be seen as residual income.)
In brief, passive income may actually demand a little work. More than likely, the income earner will have to "check in" occasionally to make sure that everything is okay - the exception being if you are earning some type of royalty such as in the example noted. Regardless, it still comes out way ahead of the the other option - "working" - by a country mile. And then some.
passive income
