Do you like having to work every day for your money? Would you rather have something that could generate an income for you without you having to continue to work for it? You probably have at least one active income stream right now, and that is a job.
It is called active because it requires your action, showing up and working, to continue. In contrast, passive income is such that once it is set up to run, you do not have to keep working but the income continues to flow into your bank account.
For example, the interest you get on money you put into a bank account would be passive income because they pay you just to let your money sit there in the bank. You don't have to do anything and they continue to add more money into your account each month. Of course, a savings account is one of the worst forms of passive income because the interest rate is so low that it would take a lot of money in the bank for you to have a substantial passive income from this.
Money market accounts and certificates of deposit (CDs) tend to be somewhat better, though the interest rate may still be somewhat low. The higher the interest rate, obviously, the better it will be for providing you with a usable passive income stream.
Of course, interest paid from the bank or from an investment is not the only kind of passive income you can have. Anything that can be set to run on its own, or very nearly on its own, can be a good source of passive income.
For example, if you were to invent and patent something, and then license out its use, you would have a passive income stream from that. Once you sell someone the license there is no more work for you to do and you get paid for as long as they continue to use that license.
Another type of passive income would be royalties from a book, music or anything else that pays royalties. This is similar to the licensing mentioned above, except it is not from an invention. The royalties usually come from each sale of a book or album, or from radio stations playing a piece of music. You might also be able to sell other rights, such as the movie rights for your book, and make even more income this way.
One of my favorite ways of creating a passive income stream, though, is to create businesses that run themselves. This is done using some combination of automation and hiring someone else to take care of the business and keep it running in your absence.
Automation tools have really come into their own since the inception of the internet. You can automate just about any routine activity, many of which would otherwise be time consuming and costly. The internet has also opened up the global labor market, allowing just about anyone the ability to outsource to another country and save considerably on labor costs.
Setting up a business like this takes some effort in the beginning, but once it is running it is a wonderful source of income. And the costs go down even more as you add additional businesses because you already have employees and automation tools you can use.
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