If you’ve ever browsed around this site, you know that John is a huge fan of passive income. Every one of his actions is based on the idea of passive income: writing for eHow, hiring staff writers, CPC ads, niche websites, dividends; all of this work is performed so that he can earn an income that’s regenerative and takes care of itself. It just so happens that John and I are incredibly similar on this viewpoint – I’m a believer in passive income as well. But what is it that makes passive income so great in my eyes?

Passive Income vs. Earned Income

Do you understand the difference between passive income and earned income? A typical job is a great example of earned income. You head to a building, punch the clock, work for a certain amount of hours, punch the clock again, and then you head home. Your pay is not dependent on what you accomplished that day – you get paid based on the number of hours that you worked. In other words, if you show up and put forth a little bit of effort, you get paid. If you don’t show up, you won’t get paid. It’s a time for money exchange. And, what if you want to increase your income? Since promotions don’t happen too often, you’ll have to work more hours – either at your current job or you’ll need to get another one. The more time you put in, the more you get paid.

Passive income is radically different and most people do not understand it. In order to generate this type of income, you’ll typically put in quite a lot of time to develop the core of the business and get paid hardly anything to do it. In the beginning, those that work for earned income look at the pennies that you’re earning and they think you’re crazy. Why wouldn’t you just do what they do and make some decent money already? What they don’t understand is that your earnings could multiply many times over, which soon propels your income past theirs. Plus, it’s typically at this point where their income has peaked and they have no hope of earning more.

Michael Jordan vs. Bill Gates

Most often known as one of the best basketball players of all time, Michael Jordan was paid quite well for what he did on the court. He was also paid for endorsements and appearances, which I’m sure totaled a hefty sum, but guess what? Michael Jordan was an employee. If he decided that he wasn’t going to play basketball for a couple of weeks, his team would not pay him. He needed to show up and “punch the clock” to earn his paycheck, just like the rest of us.

Today, Michael is worth $500 million. Not too shabby huh? I’m sure he could survive for a while if he stopped earning his income. He has done quite well in the “earned income” category, but guess what? Passive income still takes the cake. Let’s read on….

Whenever I hear the phrase, “computer geek”, I think of Bill Gates. He is most definitely one of the better geeks of his day, but he’s also one of the most brilliant passive income earners I’ve ever seen. At a very young age, Bill decided to improve the usability of the computer and developed “Windows”, an operating system that made the computer simple. While he was developing the software, guess how much money Bill was making? Absolutely nothing! Who in their right mind is going to pay for a half-completed project that would most likely fail?

So, in order to write the software, Bill basically worked for free, but hoped that it would pay off once it was finished. Well, his time certainly wasn’t wasted. Soon, the software was complete and all Mr. Gates had to do was watch the money roll in as he sold disc after disc after disc. Today, Bill Gates is worth $59 billion, which is more that 100 times the net worth of Michael Jordan.

Passive Income Wins

So why is it that creating a passive income can develop into a larger amount of money than earned income? It’s quite simple really. Let say that your friend works as an employee. He punches his clock every day and earns $40,000 for the year.

With passive income, you might not make an income at all in your first month because your project is not yet complete, but let’s say that you finish it in the second month. Sales start out slow, but then they grow at an exponential rate. $200 in February, $400 in March, $800 in April, $1,600, $3,200, $6,400, $12,800, $25,600, $51,200, $102,400, and $204,800 in December. The income started slow, but once it picked up it shot off like a rocket! Instead of your friend’s $40,000, you earned $409,400!! That is why passive income wins.

Are you making an effort to develop passive income? And, do your friends think you’re nuts!?

This post was written by staff writer Derek.
 

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Do you have a desire to make a passive income? I assume if you would like to create a passive income stream, then you would also like it to continually come in, month after month, without a hitch. I know I would! Lucky for me (and now, lucky for you), I recently stumbled upon a book that taught me how to do just that!

The book is “The Entrepreneurial Myth” (E-Myth for short), written by Michael Gerber. There are so many gems in this book; I strongly suggest that you go read it, especially if you own (or will own) your own business. The gem that stuck with me was simply this: Innovation, Quantification, and Orchestration.

Innovation
When an individual decides that he/she is going to start a business, there must be some sort of innovative thought that comes along with that. If a business is started and it is absolutely no different than the already-existing business up the street, then it will fail 100% of the time!

For a business to survive and become profitable, it must constantly innovate, and do so faster than the competitor.

Quantification
When all of these innovative ideas are taking shape, how will you ever know if they are working? Somehow, they must be quantifiable – you must have a way to effectively measure the success of each innovation. If you are not able to measure the results, then you’ll never have any idea what’s working and what’s not.

Orchestration
Once you know exactly what works and what doesn’t, you must formulate a systematic way of doing even the minor tasks. This way, you will no longer have to be the magic of the business. It can now be done by anyone that you hire! For this one, think of McDonald’s; they are the masters of systematic orchestration. Even unfocused teens can perform each task effectively!

Make Passive Income

So, how does this relate to your passive income? While the book does not specifically use the word, “passive income“, this method is set up perfectly for any business to run smoothly without you, and therefore generate money passively, or without work.

Think about it, let’s say you own your own online store. You single-handedly order the products from the supplier, post them on your site, take the orders, package the products, and ship them. You’ve done this for a few months and are getting into a groove, but there are too many orders for you to handle. It’s time to bring someone else on board to help you.

While this may seem like a great solution, you soon realize that you have no real process in place. Your employee asks you the same questions, but each time she asks, you give a different response. Naturally, the employee never seems to do the work quite right (because of your lack of effective orchestration), so you let her go and fall farther and farther behind on orders as you work harder and harder.  This income is far from passive.

How to Make Your Income Passive (for life)

It seems difficult, but in reality, it is very simple:

• Master your process (make it simple and efficient)
• Write down the steps so anyone can perform the tasks
• Hire your help and guide them with your written instructions
• If something comes up that is not in the written instructions, add it
• Your new-hire will begin to work without your help (since you are no longer the only source of knowledge)
• Your income is now passive, and will continue to be passive as long as you have a system that is simple and written down.

Really, it is that simple.

What do you think of these 3 steps? Will you use them in the future?

This post was written by staff writer Derek.

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Since this site is called, “Passive Family Income”, I would assume that most of you already know what passive income is, but for those of you that do not, allow me to explain. Passive Income is simply money that is generated today from efforts performed in the past.

Let’s say your brother is a writer and he wrote a book a few years ago that is still selling copies. Even though all of his work occurred in the past, he is still generating an income from those sales.

The Importance of Multiple Streams of Income

Some individuals pour all of their energy into their 8-5 career jobs and never look elsewhere for another source of income. I am not this way. I do enjoy my job (somewhat) and I feel that it is secure, but I am always looking into other sources of income. Why do I do this?

• Chance of Job Loss - jobs may seem secure, but in actuality, your employer can dump you at any time. You ARE replaceable.
• Unexpected Bundle of Joy – what if you found out today that you were going to be a new mom/dad? Would you immediately start thinking about the added expense? I know I would. Rather than freak out, it would be nice to have other avenues of income already in place that would cover these expenses.
• Medical Expenses – much like the previous bullet, this would be unexpected. With other possibilities for income, these expenses would seem much less severe.
• Build Wealth Beyond Your Wildest Dreams – this is what I would like to focus on today. If you focus on other income streams (of passive income), you can grow wealth far beyond what you ever thought was possible.

If You Can Make $1,000, You Can Make $1,000,000

I heard this a couple of years ago, but I forget the source. My initial reaction was something like, “Yeah, if I work for 40 more years!” But, I did not fully understand what the wise man was saying. I was answering the question based on my current method of income (working for a certain amount of money per hour).

When he spoke his words of wisdom, he was making reference to passive income. If I worked at obtaining $1,000 worth of passive income in month and did practically nothing after that (some slight maintenance perhaps), then my income would continue to be $1,000 a month (it’s passive, regenerative income remember?). But, let’s say we did that same thing again and earned another $1,000 per month. Now we could sit back and do nothing, but continue to earn $2,000 ($1,000 + $1,000) per month.

So, where’s the $1,000,000? If you can make $1,000 per month in passive income, then you can make $1,000,000 a month too. Simply keep repeating the process. It might take you 1,000 cycles, but you know what? It just keeps getting easier and easier as you repeat the process.

Are you ready for a tangible example? Let’s take a look at that writer again. He finished his book already, but is still getting paid for the sales. If he wrote another book, now he’s getting paid royalties from two sources. Write another book, and that’s 3 times the wealth! Easy huh?

Have you started a passive income stream? Have you already created more than one? Do you realize that $1,000,000 could happen?

This post was written by staff writer Derek.

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Retirement is a very important topic for many, and it’s one that I often think about as well. There are many different advisers that provide some great information regarding the amount that you should invest monthly in order to meet your goals at retirement age. But, often times the resulting financial goal seems daunting. $1.5 million? $2 million? How will you ever save over a million dollars by the time you retire?

Passive Income

By utilizing the method of passive income (earning money effortlessly today for something you worked at in the past), often times you do not need that large retirement fund. You simply live off the monthly income that continues to come in because of your efforts from years ago. Rather than go through the details, simply peruse this site. It’s filled with great resources on attaining a passive income.

Double Your Retirement Investments

Let’s say your current adviser suggests that you sock away 10% of your income into your retirement savings (or investments). If you make $4,500 per month, that means that you should be investing $450 in your retirement fund. For some of you, this value alone might be a stretch for your current financial situation, so how in the world could you double your investment?

Here’s the main problem, when one speaks of doubling their retirement investments, many people immediately think that your income needs to double. This is not the case. In our scenario above, the monthly income only needs to increase from $4,500 a month to $4,950 a month, which is only an increase of 10%.

Some individuals may get a raise of 10% this year. Well, problem solved. Just continue to live within your budget before the raise and contribute the additional money to your retirement funds. With the additional 10%, your contributions to your retirement savings have now doubled.

While a 10% raise does happen occasionally, it probably isn’t very likely. So what about the rest of you? There are two simple solutions:

1. Earn more money
2. Reduce expenses

If you have the motivation, I believe that it’s very easy to find an extra $450 to put towards your retirement. You could find a way to cut $200 from the budget, and then earn an extra $250 with side jobs. There you have it! You just made your 450 bucks and can watch it grow in the retirement accounts. But, what is the motivation?

Why Do You Want To Double Your Retirement Investment?

Let’s say you’re hoping to retire within 30 years, and your projected retirement balance (if you consistently put in $450 every month) is around $1 million (after interest of course). Do you think that it’s really enough? I just calculated my necessary nest-egg, and the investment calculator said I needed $3.9 million to continue living the lifestyle I enjoy today!!

So what if you want to double the outcome? What if you think you might need $2 million instead of $1 million? All you have to do is double your contribution. Increase that monthly debit by $450 and you are on your way to that new $2 million dollar goal.

Are you saving for your retirement? Does the end goal seem unattainable? Do you think that you could invest more if had the correct motivation?

This post was written by Staff Writer Derek.

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When you’re young, you might think about retirement only once a year – when you have the ability to update your 401(k) options. Once you re-select your fund allocation, you push the papers back into the closet to collect dust for another year. It’s either this, or you don’t contribute or think about your retirement at all!

When I look around me at the typical person in South Florida, there are so many of them that merely live in the moment. Their paycheck is already spent in their mind before it even gets into their bank account. To them, retirement seems like a distant dream and they have plenty of time to think about boring investments later on in life. But, if you want to truly retire (and not work at Wal-Mart or McDonald’s when you’re 70), you’ll most definitely need to think about your retirement NOW – no matter what your age.

Out of curiosity, I performed the Google search, “How much money do I need to retire?”, and I immediately found a great source: CNN Money. They have an excellent calculator that not only estimates the amount of money you would need in today’s dollars, but also what that amount will be at the time of your retirement.

Naturally, I plugged in some figures to see what results this calculator would yield.

• Current age: 25
• Current annual income: $70,000
• Desired retirement age: 65
• Desired Retirement Income: 100% (meaning, I want the same lifestyle as I have today)
• Life Expectancy: 90 years old (if you are 25 now, the average age of death is actually expected to be closer to 100!)

The number that flashed at me was astonishing! $3.9 million. That is the lump-sum amount that is necessary to retire by age 65 (equivalent to $1.2 million today). That is going to be one tough number to achieve! My projections on my current investments will only yield $800,000 after 40 years of investing. Looks like I might have to step up my contributions!

As I thought about this number though, I quickly questioned, “What about passive income? Where is it calculated in this retirement tool?” As it turns out, it’s not a factor at all (they only list pensions and social security – but where will those be in the future?)! CNN Money – the large and in charge money resource that it is – did not even consider the idea of passive income in the future. They merely figured how quickly you would eat up your savings as you continually spent without any income whatsoever. So what would the number be if you had a passive income (and no lump-sum savings)?

Let’s work with the ratio that was provided to us by the calculator, which said that $1.2 million dollars today was equivalent to $3.9 million 40 years from now. We’ll round up and say the ratio is 3.5. If I would like to live on $70,000 in tomorrow’s dollars (or 40 years rather), I would need a passive income of $245,000 per year. You may gasp and say, I’ll never be able to create a passive income of nearly a quarter million dollars a year? But why not? You have 40 years to achieve this (some of you may have only 20 or 30 years, but that’s still quite a lot of time)!

My advice would be to start a business very soon (your best option may be an online business) and then pick up the book “The E-Myth (Revisited)“. With any business, there is a systematic method that can turn it into passive residual income. This system will most likely multiply your earnings as well. If you continually innovate and adjust, I don’t see any reason why you can’t achieve the level of passive income necessary to retire.

Have you started your journey toward passive income? What are your ideas? How do you feel about the large numbers I was using today? Is it frightening? Or do you wish to embrace the challenge?

This post was written by Derek.

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