3) Create A Plan. Mark Spitz once said, “If you fail to prepare, you’re prepared to fail.” You must create a system where you are saving X amount of money every month, investing Y amount every month, and working on Z project until completion. Things will be slow going at first, but once you save a little bit of money you will start to build momentum. Eventually you will find synergies between your work, your hobbies, and your skills which will translate into viable income streams.
That’s a nice read! I love your many tangible ways mentioned to make passive income unlike certain people trying to recruit others by mentioning network marketing and trying to get them to join up and sell products like Amway, Avon, Mary Kay, Cutco or 5Linx. People get sucked into wealth and profits and become influenced joiners from the use pressure tactics.
Over the past decade, passive income strategies have made a prominent name for themselves in the investing community. The name says it all: passive income. Once you have conducted the appropriate due diligence, you essentially just need to wait for the checks to start coming in. However, for one reason or another, there are those that are still skeptical of passive income strategies. Whether or not this is ignorance or trepidation, there is only one thing you can do to overcome any reservations you may have: education. The more you learn about passive income, the more inclined you may be to exercise one of its strategies.
5. Make sure you are properly diversified. Capital preservation is underrated. We saw a lost decade for tech stocks between 2000 and 2010 after the first dot-com bubble burst. It actually took 13 years for Nasdaq investors to get back to even. Investors in the Borsa Istanbul stock market index just gave up 10 years' worth of gains after they saw a plunge in their currency, partially due to increased tariffs by the US and a lack of confidence in the government. Your passive income needs to be properly diversified in order to take the hits.
Residual income is income that a person continues to make after the work he has put into a project has been completed. Residual income is different from linear income in that linear income refers to someone’s salary. Salaries are paid based on the number of hours someone works in the present, rather than the royalties someone can earn on work that was done in the past. To explore this concept, consider the following residual income definition.
3. Business: As I mentioned, not all businesses are created equal when it comes to residual income. Let’s take a look at a local taco stand. Sure, that taco stand might have loyal patrons and make the best damn steak taco you’ve ever had, but they also have to wake up every day and turn the lights on and fire up the grill to get paid for their special tacos. Versus, I own my own financial services business and we charge an asset management fee. So, literally tomorrow I am going to earn a fee whether I go in or not. Sure, I have to maintain relationships to keep earning that fee, but truly the income is residual because once I sign up one client I am going to make money off of their money perpetually. See the difference?
Well written piece, but I question the core premise. Why the fascination with maximizing “income” (passive or otherwise). Shouldn’t the goal simply be to maximize long-term after tax growth of your entire portfolio? If this takes the form of dividend paying stocks, so be it. But what if small caps are poised to outperform? What if you want to take Buffet’s or Bogle’s advice and just buy a broad market index like the S&P 500, (no matter what the dividend because you’ll just have it automatically reinvested to avoid the transaction fees).
CD Interest Income: I only have one CD account left in the amount of $185,000 paying 3%. It expires at the end of 2018 and I’ll have to figure out what to do with it. After selling my SF rental house in mid-2017 for 30X annual rent, I’m left with about $500,000 in cash after investing ~$2,200,000. The best CD today is the CIT Bank 12-month CD at 2.5%. That’s pretty darn good because just a couple years ago, such a CD was less than 0.5%. The yield curve is flattening, meaning folks should take advantage of shorter duration CDs.
If you’re looking for a way to begin gradually replacing your income, these are just some of the best ways you can do it as a physician. Remember the idea of gradual retirement? Passive income streams like the ones mentioned here are perfect ways to allow you to spend more time with family, enjoy your day job more, and, of course, make a little money while you’re at it.
Rental properties are defined as passive income with a couple of exceptions. If you’re a real estate professional, any rental income you’re making counts as active income. If you’re "self-renting," meaning that you own a space and are renting it out to a corporation or partnership where you conduct business, that does not constitute passive income unless that lease had been signed before 1988, in which case you’ve been grandfathered into having that income being defined as passive. According to the IRS, "it does not matter whether or not the use is under a lease, a service contract, or some other arrangement."
Over the past decade, passive income strategies have made a prominent name for themselves in the investing community. The name says it all: passive income. Once you have conducted the appropriate due diligence, you essentially just need to wait for the checks to start coming in. However, for one reason or another, there are those that are still skeptical of passive income strategies. Whether or not this is ignorance or trepidation, there is only one thing you can do to overcome any reservations you may have: education. The more you learn about passive income, the more inclined you may be to exercise one of its strategies.
Nobody gets early FI investing in bonds, CD’s, or even stocks unless they make a huge income or are extremely frugal or a combination of both. Paper assets just don’t provide enough returns. Business income can be great but it is typically not as semi-passive as I would like and there is a relatively high failure rate. That is if you can monetize an ideal to begin with. RE investing needs to be higher ranked IMO as a way that the “average guy” can become FI.
Successful websites almost always have multiple streams of residual income. Setting up a website that brings income with minimal work is the dream of everyone doing business online, and if you are a website business owner who has the knowledge it takes to build and market a business website, you can also gain multiple streams of residual income that will keep generating income long after the initial investment has been made.

In mid-2017, I sold my San Francisco rental property for 30X annual gross rent and reinvested $500,000 of the proceeds in real estate crowdfunding. I’m leveraging technology to invest in lower valuation properties with higher net rental yields in the heartland of America. With the new tax policy starting in 2018 capping state income and property tax deductions to $10,000 and limiting interest deduction on mortgages of only $750,000 from $1,000,000, expensive coastal city real estate markets should soften at the expense of non-coastal city real estate.
Let’s say a company earns $1 a share and pays out 75 cents in the form of a dividend. That’s a 75% dividend payout ratio. Let’s say the next year the company earns $2 a share and pays out $1 in the form of dividends. Although the dividend payout ratio declines to 50%, due the company wanting to spend more CAPEX on expansion, at least the absolute dividend amount increases.
As an economic concept, residual income has a long history, dating back to Alfred Marshall in the late 1800s.1 As far back as the 1920s, General Motors used the concept in evaluating business segments.2 More recently, residual income has received renewed attention and interest, sometimes under names such as economic profit, abnormal earnings, or economic value added. Although residual income concepts have been used in a variety of contexts, including the measurement of internal corporate performance, this reading will focus on the residual income model for estimating the intrinsic value of common stock. Among the questions we will study to help us apply residual income models are the following:
A good portion of my stock allocation is in growth stocks and structured notes that pay no dividends. The dividend income that comes from stocks is primarily from S&P 500 index exchange-traded funds. Although this is a passive-income report, as I'm still relatively young I'm more interested in building a large financial nut through principal appreciation rather than through dividend investing. As an entrepreneur, I can't help but have a growth mindset.
Greg Johnson is a personal finance and frugal travel expert who leveraged his online business to quit his 9-5 job, spend more time with his family, and travel the world. With his wife Holly, Greg co-owns two websites – Club Thrifty and Travel Blue Book. The couple has also co-authored a book, Zero Down Your Debt: Reclaim Your Income and Build a Life You'll Love. Find him on Instagram, Facebook, and Twitter @ClubThrifty.
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