Freak Speak: Passive Income = Income one makes even when they are not actively working. There are many types of passive income; some simple and some more complicated.
Non-passive Income = Income for which you must trade your time for money. If you’re not working, you’re not making money.
In her book Your Money or Your Life, Vicki Robin talks about the idea that money equals life energy. We trade our time, which is our most valuable resource, for money when we work our jobs. In other words, you “pay” for money with your time. But what if you could acquire money without giving away your time (or very little of it)? This is an option! Very few people know about it, but wealthy people understand it well.
This idea is called passive income. And once you understand passive income and how it works, your life will never be the same, and this is a very good thing.
Robert Kiyosaki talks about three types of income in his book, Rich Dad Poor Dad for Teens. At some point in your life, you will likely earn money from each type of income. You should be familiar with all three and also realize that the 2nd and 3rd types are the best ways to build wealth, reach FI, and become a freak. In other words, #2 and #3 kick #1’s butt.
Rich Dad Poor Dad for Teens by Robert Kiyosaki (2012) pg. 45-46
1. Ordinary Earned Income
This is money you earn from working a job. If you babysit, wash dishes at a restaurant, or make sandwiches at the local sub shop, you are receiving this type of income. Once you get a “real” job after high school you will be earning this type of income usually in the form of a paycheck. The biggest downfall of this type of income is that if you don’t work, you don’t get paid. If you take a vacation, are sick, or quit your job there is no longer money coming in. How can you get paid for not working? Let’s look at #2 and #3.
2. Passive Income
Kiyosaki says, “Passive income is earned even when you’re not physically doing any work…. Money made from real estate is passive income. This is how I made money for many years, and it is an extremely good way.”
“I got into the business of collecting [rental] units….I just figured every property I bought…gave me a certain amount of money. Each one was like this little oil well, producing little bits of revenue. It’s like having a bunch of those little candy machines that you put the quarter in. It’s like the more you have, the more you make. So every [property] was like a little candy machine…”
In other words, passive income comes in even when you’re not working. For these reasons (and more), it dominates income type #1. Passive income isn’t always 100% “passive”. It does require some work. But instead of working 40+ hours for that paycheck, you may only have to spend a handful of hours per week, or less, taking care of your passive investments. Unfortunately, most people never make any passive income. They never take the chance or think that they can do it. But not you because you’re a freak. You will be earning passive income very soon if you follow this blog.
Kiyosaki goes on to say, “People who are rich are usually good at generating passive income. Their money is working for them while they’re working in other ways – managing their portfolio (see next income type), starting other businesses, or simply enjoying their lives.” This is where you want to be. It’s the “secret” to building wealth. This blog will get you on your way to earning passive income every month. And eventually, enough so that you will be financially independent and can choose to work wherever and however you want – or not at all.
3. Portfolio Income
“If you have money invested in paper assets (stocks and bonds), you have portfolio income. Portfolio income works on the same principle as passive income. Your money is working for you even when you’re asleep!” says Kiyosaki. Lots of people earn portfolio income by investing in the stock market in one way or another. Unfortunately, most people do it not nearly enough and/or they start way too late in life.
Sound confusing or overwhelming? Don’t sweat it now. This is not complicated stuff. This blog will walk you through every step. You’ll be earning passive and portfolio income very soon!
“…you will see that Financial Independence isn’t just for the 1 percent or the 10 percent [of people making the most money]. It’s for anyone and everyone who chooses to transform their relationship with money and accumulate enough wealth, which, when invested wisely, can provide a lifetime of passive income.”
Your Money or Your Life by Vicki Robin & Joe Dominguez (2018) (2nd revised edition) pg. 248