There are two ways to make more money. Work more using your own time and skills or work less and use the time and skills of others. If you had a choice, would you choose to work more or work less? I’m guessing that many people would choose to work less, especially if they could make the same amount of money or more. Working less requires the use of leverage. Businesses use leverage all of the time. Sometimes it comes in the form of a loan or working capital and other times it comes in the form of labor or outsourcing certain technology needs.
If you’ve already picked up your copy of 9 Steps to a Profitable Portfolio then you know that I talk about the difference between active income and passive income. Active income is what 99% of the population makes. It’s the income that comes in after a long day’s work, after spending your day in a cubicle or serving patrons at a restaurant. This type of income is dependent on your active time investment. You are trading hours for dollars. When you stop trading your hours, you stop getting dollars. There’s nothing wrong with active income but at some point, you will not be able to trade hours any longer, and your cash flow will dry up. That is the reason that I am a big fan of building up passive income.
Passive income is talked about often on the web and blogs and sometimes it’s from pretty unsavory characters that just want you to buy into their get rich quick products. Trust me, been there done that. The myth is that passive income requires little to no active work hours. And that’s where most people become disillusioned. The fact is that building up passive income sometimes requires more time and effort than just bringing home a check from active income. The reason being is that you have to work today and build something for tomorrow, so that often takes twice as long. For example, I have a friend that is working on writing an ebook, however, he also has a full time job, a new house, a wife and a successful part time business. The ebook could generate an ongoing stream of passive income but it’s going to require an upfront committment of time in order to get it done. (I plan to stay on him til it’s done. How’s that for motivation? )
Making Passive Income with Leverage
There’s a third level of income that I didn’t mention in the book, and it requires more than one person. Active income is the effort of one person. Passive income requires double the effort of one person, but passive income with leverage requires good management skills. Have you ever hired an employee? If you were a toy maker and by yourself you could make 10 toys and hour, you would be making active income. If you patent the process that you use and then license that patent to others who want to use it, you could be making passive income, but if you hire a team of 10 elves that could make 100 toys an hour, you have just used leverage to generate passive income. Whether you are actively working or not, 100 toys get made. That’s passive. If you hire a foreman to oversee the elves and you could fly to Barbados for a week, that’s passive.
Do You Want Passive Income?
So with that said, I ask you, do you want passive income? Are you willing to work for it? If you put in the work now, and surround yourself with a network of the right people, you all can help each other to the top.
How are you building passive income?