truly passive income

passiveincometshirt

yep. I do I do I do-ooo.

Truly passive income.  That’s the goal, right?  Earning money while not working to do so.  Going to sleep every night, and waking in the morning to find that someone has put a dollar in your wallet.  Pretty cool, but nothing I’m going to wet the bed over (outside of the thought of someone sneaking into my room while I sleep).  But now imagine someone putting $5, $10, $15 into your wallet every single night.  That’s something to get excited about.  You literally find yourself with more money everyday, and you have to do nothing more than stay alive.  Income doesn’t get any more passive than that.  You might be thinking “Well duh-doy.  But how do you do it?”  Invest.  Investing can result in the single greatest form of truly passive income imaginable.

Like me, you probably sell your time.  You exchange your labor for money.  You receive a paycheck upon the completion of the agreed upon work.  That money is yours to do with as you wish.  You pay for your necessities.  Maybe a coffee here and there, or the cable you swear you’re going to cancel soon. But once you spend it, it’s gone.  That all-too-familiar “oh crap, where did my money go?” feeling we’ve all had at some point.  So, what are you really doing with that money?

I would argue, whether you’re 25 or 55, you should invest it.  The American stock market has been the single biggest wealth creation vehicle known in the history of mankind, and this fact is both known and ignored by the greater population at large.  And most of that has to do with psychological barriers and the money illusion.  Someone would rather have $10,000 sit in the bank unchanged, year after year, with inflation eroding their purchasing power rather than using that money to make money.  “I don’t want to invest and then lose all of my money.”  Well, you’re not alone.  Nobody does.  An easy way to avoid that would be to invest in an index tied to the S&P 500.  You have immediate diversification in 500 companies.  Or, you could simply invest in the bluest of blue chip stocks.  Think General Electric, Johnson & Johnson, or Coca-Cola.  I have no idea if we’re all still going to be on Facebook in 10 or 15 years (probably not) but I will sure as hell bet that we will be using light bulbs, band-aids, and drinking Coke.  Those companies were around long before we were born, and short of a catastrophic, earth-shattering event, will be here long after we’re gone.

Tomorrow you could log into any of the multitude of brokerage websites, and buy a single share of General Electric for around $25.  Every 3 months they will send you $0.22 as your dividend payment.  That is your cut of the profits.  You are part owner of the business, and as such, are entitled to a piece of the pie.  GE is a giant, well run company with a multitude of products and billions of customers, so their profits are likely to increase.  Next year they will likely send you an increased dividend (provided the profits increased), and then more the following year, and so on and so forth.  Now imagine you buy 100 shares of GE.  You spend around $2500, and receive $88 per year.  If they never raise their dividend, in about 28 years you will have recouped all of your original investment.  From that point on, you will be receiving nothing but pure profits.  Now imagine they raise the dividend consistently each year (which they had been doing prior to the great recession) and you’re looking at an even shorter time frame in which they repay your investment.  Now, imagine you purchased the stock at a discount and they raise the dividend consistently every year (I tingle just thinking about it).

Of course, as I wrote about the other day, stocks will rise and fall in price.  The key in all of this is be consistent, and over a period of time you will find yourself with a number of ownership shares in a number of companies.  You arrange your life and your finances so that you can become a larger owner, become entitled to a larger cut of the profits, and receive more money each day, each quarter, and each year by just staying alive.  Income doesn’t get more passive than that.

Side Note: A blog is not passive income.  Do not let anyone tell you otherwise.  This shit takes work.  And then some more work.  And then a little bit more on top of that.

Another Side Note: Can you tell what’s been on my mind lately?  If you said “Investing” I hope no one was around to hear you talk to you computer.  But yes.  You are right.

Last Side Note: Yes, you will have to find a way to earn the income with which to invest.  But once you do, your money will be working for you.

Photo Credit.

How do you try to earn truly passive income?  Is there another way that is more passive than investing?

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Comments

  1. Passive income is only passive if you invest it over the long term as most investments won’t generate enough short term gain. In the short term transaction costs and taxes will eat up your gain, you might hit on a few stocks but over the long term investors underperform the market. Short term investing isn’t passive income
    Charles@gettingarichlife.com recently posted…How To Succeed At WorkMy Profile

  2. It sounds like you are (or are about to be) a dividend growth investor. It takes time and patience, but I know I’ve been richly rewarded. It’s one of the few forms of passive income I’ve found. Oh, and you’re right……blogs are not passive income.
    -Bryan
    Income Surfer recently posted…Do You Predict Future Profits?My Profile

  3. Passive income and compounding the income through reinvesting is critical to my investing success.

    Thankfully here in Australia, the average dividend on the S&P/ASX200 is around 4%, which is pretty attractive.

    You’re right though, it’s about as passive as you can get!
    Mr Ikonz @ Project Ikonz recently posted…A packet of Lifesavers costs $20My Profile

  4. Hey Ryan,

    It is hard to beat dividends that is for sure! I know many people enjoy the index investing, which does also investing in some dividend companies, and I think some sort of combo is good just to add a bit of growth.

    Kipp
    Kipp recently posted…Income and Expense for July 2014My Profile

    • I think index investing is the way to go for most people, and it’s something I practice almost exclusively. In my 401k (obviously) and my Roth. But for my additional taxable investments, I’m a dividend investor all the way.

  5. I love passive income and the idea of money working for me. What makes it more awesome is me not staying for office for 8 hours. I just started with a little investment in 2010 and now I have grown my investments which some of it are put in blue-chip companies guaranteeing more “passive” income! No regrets!
    Jayson @ Monster Piggy Bank recently posted…6 Tips for reading through contracts and the fine printMy Profile

  6. I would love to get started with investing, but I’m just not in a financial position to do so yet. Maybe in the next year or two. I’ve tried earning passive income with a few different websites. I have some that I won’t touch for months at a time, but they still bring in a little bit of Adsense earnings. I wouldn’t even call that income, though, because it doesn’t amount to much.
    Lauren recently posted…What Would You Do for $50,000?My Profile

  7. Yep, yep, yep! I’m so thankful that we started investing early on in our careers (at about age 22 with very little money). It’s been fabulous to watch it grow!
    Mrs. Frugalwoods recently posted…Frugal Hound Sniffs: The Barefoot BudgeterMy Profile

  8. I love the “set it and forget it” mentality of index funds, or dividend reinvesting, or something like that. Having a rental property is not passive, that’s for sure! And neither is my site. The amount of time I put into it to the money I get out of it… I feel like I’m working in the 1920′s with that hourly wage :)

    I cannot wait until I can start throwing bigger chunks at investing.
    Alicia recently posted…Sometimes Things Line Up…My Profile

  9. I’ve learned that very few streams of income are truly passive, but dividend growth investing absolutely is! It’s incredibly exciting to discover that companies have paid out even small amounts. It adds up! The only downside of my newfound unemployment is less cash to buy more stocks with!
    Addison @ Cashville Skyline recently posted…Is Monetizing a Blog Selling Out?My Profile

  10. You’re right that running a blog is not passive income at all. It might not be the same as a 9-5 job, but it certainly isn’t passive either!
    Holly@ClubThrifty recently posted…It’s Hard to Call This LuckMy Profile

  11. Funny you mention GE…that stock has been on my mind. I generally just invest in index funds though, but do have a small portfolio of individual stocks. I’m glad that I started investing early…it really pays off. After reading a few blogs, I’ve been interested in investing in rental property (turnkey with property manager because it will have to be long distance as no cash flow properties in NYC…too expensive).
    Andrew@LivingRichCheaply recently posted…Our “Throw it Away” SocietyMy Profile

    • I’m the same way Andrew. I’ve got some personal funds I select, but most of my investments are in index funds. I’m also looking at rentals, but I still need to learn more about the different aspects of it. I know I technically started early, but still feel like I’m behind in the game.

  12. I’m one that gets nervous from the stock market and investing. Probably because I don’t understand it enough to jump into it, yet. At this point we are focused on killing our debt. Once we’ve taken care of that, I want to learn more about the investing world.
    Brandy @ Busted Budget recently posted…We found $5 and spent it on beerMy Profile

  13. You have a great point there! Passive income is something I’m going to slowly be working on (aside from investing) as I go forward. Aside from investing, I rent my garage each month, which a nice little cushion of money where I don’t have to lift a finger.
    Tonya@Budget and the Beach recently posted…Can You Spare 15 Minutes?My Profile

  14. “Side Note: A blog is not passive income. Do not let anyone tell you otherwise. This shit takes work. And then some more work. And then a little bit more on top of that.” It can be passive, though. I have a friend who owns five blogs. Doesn’t write on any of them. Doesn’t manage any of them. Everything is outsourced. Granted, he bought 4 of the 5 as investments and the other one him and his wife built up until it hit the “tipping point” where he could outsource everything and take profit off the top. Just wanted to point that out ;) My blog is not passive at all, nor do I think blogs are the best way to pursue passive income.

    Dividends are by far the best form of passive income. While investing is always good, increasing your income can be better. Executives, when their stock options are factored in, can make more per month than most people make in a year. Increasing your income via your career or starting a business that you can later sell (and subsequently invest the money you make off the sale into passive investments) are the best approaches I think.
    DC @ Young Adult Money recently posted…Are Old Cars With Expensive Repairs Worth It?My Profile

  15. I agree with you, prices will rise and fall, and you might find yourself losing a significant amountof money in a day. Nevertheless, I still think it’s one of the best ways to create passive income in the long run. The key is to retain your stocks if you’re more of a risk averse investor and let the dividend income comes into your pocket regularly (or you can invest it back as well).
    Poor Student recently posted…Eating Healthy on a Student BudgetMy Profile

  16. I seriously need to start investing and quit thinking about it. Great post Ryan.
    Brit recently posted…52 Week Saving Challenge Week 32My Profile

  17. I think you are dead on. Once we pay off our student loans 100%, we will be getting much more serious about dividend investing.
    Liz recently posted…Our Student Loan StoryMy Profile

  18. Funny timing. I’m thinking about selling my GE stock. Worth mentioning that dividend stocks are great buys during a down market. GE got as low as $6/per share during the recession. If you had bought it then, you would have made a 12% dividend for the last 4 years.
    Chattanooga Cheapster recently posted…Are CSAs Worth It???My Profile

  19. I agree that investing is the way to go, and that is why I started my Roth IRA at 19 years old. My strategy will be dividend investing, real estate, and some bond mutual funds to mitigate risk. These three will take care of all my passive income in order for my early retirement to kick in.
    EL @ MoneyWatch101 recently posted…The 10 Secrets Millionaires Live ByMy Profile

  20. I always hear people say that investing is risky. Well, for me, investing itself is not risky. It’s financial illiteracy that makes it a risky one. There are a lot of investment types you can choose from. You just have to be informed and educated in where you will invest your money to. Having a passive income is not just a dream. I can happen to anybody who is determined enough to learn and take risks.

  21. Very rapidly this site will be famous amid all blog visitors,
    due to it’s nice posts

  22. I invest through my Roth IRA (at Betterment) and 401k and I absolutely LOVE seeing my money multiply before my eyes! Yes, there are some bad months where the value of my accounts decrease, but I’m not worried too much about it since those are the best times to keep investing so I can realize even more gains in the future.

    And yes, blogging is absolutely NOT passive!
    Lisa E. @ Lisa vs. the Loans recently posted…July 2014 Net Worth UpdateMy Profile

  23. Without any investment or hard work with right skill passive income is not possible. If you have a blend of active or passive income, you can go ahead.
    John recently posted…What is bourbon?My Profile

  24. “Side Note: A blog is not passive income. Do not let anyone tell you otherwise. This shit takes work. And then some more work. And then a little bit more on top of that.”

    Haha… so very true. The other day someone asked how much I made online last year and I said over $100,000. Then I got asked how much I work and I said 70 hours/week and they’re like “aww hell no!” haha… Blogging is DEF not passive ;) (And also – I need to not work so much)
    J. Money recently posted…How I Make Money Online…My Profile

  25. My husband and I are definitely buy and hold investors, owning some of our stocks/bonds for years. We only buy bonds and dividend paying stocks. We even avoided Apple stock until they started paying a dividend. We are diversified enough now that almost every day my husband comes out of his office to tell me that another couple hundred (more or less) dollars has dropped into our account due to interest or dividend payments. My mom is scared to death of the stock market because she grew up during the depression so only wanted her money in bank CDs. She always said that even if she didn’t get interest, the face value of the CD would never go down. I say, that with our approach, even if the stock value goes down, it will always pay out the dividend (or interest in the case of the bond). We will always have the income we need and most of it gets re-invested into more stocks.

  26. Great stuff! I’ve recently got into dividend investing, and it’s been a good decision so far.

    And no, blogs aren’t passive. They can be kind of passive-ish, but getting them set up right takes a LOT of work. Keep it up!
    Wess Stewart recently posted…How To Make Money With Direct Sales Products (Without Joining a Direct Sales Company)My Profile

  27. This is a great post about a general investment approach that allowed my wife and I to retire in our mid-40s. I agree with you that index funds are typically the way to go over the long haul. Holders receive wide diversification and low management fees.

    But stocks are now at an all time high and ripe for a big correction downwards (this bull market after all has been running since March, 2009—more than five years!). I’ve invested in stocks since the mid-1980′s and seen many market ups and downs. I side with those who think this long-in-the-tooth bull is due for a fall.

    Have you considered building up a storehouse of cash that can be deployed to buy more equities if and when a correction occurs? I’m not suggesting a timing of the market, but rather I’m suggesting a slight hedge against a possible major plummet in share prices. For example, cutting your 2014 index fund purchases by 20% or so to build a cash stockpile of “dry powder” would give you a greater ability to “buy low” if equity prices fell in next year or so—and many market observers think the prices will fall. Just wondering about your thoughts on this . . .

  28. these comments are just like a self licking ice cream cone…. everyrone is so supportive when they really want to generate links for their shitty boring blogs… pathetic if you ask me

  29. Been trying to have passive incoming. As of now, my blog is giving some income. I’d like to increase it as the time goes by. Hope to make it skyrocketing!
    Jayson @ Monster Piggy Bank recently posted…Ways to Sell your Home FasterMy Profile

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  1. […] I’ve been talking a bit more than usual about investing.  It’s been on my mind a lot lately.  A few weeks ago (maybe a month now, I’m not so great with days during the […]

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