I was going to write a post today about my experience with outsourcing work. However, the work I have outsourced is not finished yet, so that post will have to wait for a later date. Instead, I thought I would explain a simple yet incredibly important topic of passive income.
In theory passive income is money that you earn without having to expend additional effort. And I don’t mean something like winning the lottery. Common offline examples include dividends from stocks, rental income or bulk candy vending.
In practice most passive income strategies involve a fair bit of work at the start but should only require minimal work in the long run. To better illustrate this, let me use the real estate market as an example since you are probably already somewhat familiar with it (you do live somewhere right?)
Now, I am going to use simple numbers here for simplicity sake. Obviously, real world examples will be different depending on where you live but I hope it will serve to clarify the difference between earned income and passive income.
Say you buy a slightly run down house for $10,000. You now have a choice, you can either rent out the house for $100 a month, or make some cosmetic improvements to the house and try to resell it for more.
Let’s assume that you opt for the latter option because you heard you could make killing flipping houses. You do some work to the house and a month later you are able to sell it for $15,000. You just made $5,000 right? WRONG! Continue reading →