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Passive Income

What is Passive Income?

This term is used to describe income earned from previous efforts.

Let us assume that you are a rock star and have written and performed many great songs. Every month you receive your share of income from sales and use of your intellectual property (played on radio).

Other sources of passive income may include any of the following any more:

  • Receiving commission for the life of business contract.
  • Buying a house and receiving rental income.
  • Buying a silent share in a business and receiving your share of the profits each month.
  • Receiving dividends on the $2 billion of shares you have in Microsoft as you were a founding employee.

Why Earn Passive Income?

The desire to earn passive income is purely a choice. If you are happy going to work and earning a fixed salary then passive income is of no use to you. The benefits though are many including:

  • Greater financial security (lower risk) due to more than one income source.
  • More income allows a greater surplus in cashflow, thus more savings.
  • Generally greater choices in life. Not worrying so much about resources is the foundation of peace of mind.

Is Passive Income Unethical?

Many people I have met over the years believe that passive income is unethical. They believe that rampant capitalism is an evil. To a small degree they are correct - unregulated capitalism leads to major fluctuations in the market and big recessions (just look at the Global Financial Crisis). A properly regulated market with clearly defined functional boundaries and the freedom for individuals and companies to trade as they please within them minimises the issues that concern so many.

 

When earning passive income you are still contributing to society through your previous efforts, but taking the earnings over time. Your music entertains and relaxs people, the investment house you bought put a roof over someone's head, and your contribution generally added to the economy which increases the taxation base for the resources shared by the community.

 

You may not totally agree but ultimately this is a choice, and fundamentally the choices of others need to be respected or there will be tension.

Is Passive Income Money for Nothing?

I think Passive Income is commonly viewed as money for no current effort (money for nothing). Be wary of this as it can lead to complacency if you do earn passive income, and jealousy if you do not. You previously worked hard to establish it, and technically you still need to administer passive income and ensure it’s paid to you correctly and in the right amounts. So is it really money for nothing?

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