Identifying The Three Types of Passive Income

by WorkFromHome on September 22, 2011

When it comes to making money, it’s widely accepted that we could always be making more — somehow, somewhere. Many people meet this need by getting a second job, working part-time to help boost their annual salary after they’ve already put in a full day at the office during the day. But this is not necessarily the way things need to be done. In the era of internet businesses and work from home plans, income can be generated all day long without even working on a specific product. Known as residual, or passive, income, this type of salary accrues over time via something like royalties, subscriptions, or other long-range earning plans.

When it comes to generating passive income, there are three main types that people should be aware of. Each is pursued in a slightly different way, and has slightly different results and consequences for the person who chooses it.

Residual Income

Simply put, this type of passive income involves a constantly-flowing revenue stream that is generated by work which is done just one time. It is perhaps the most prevalent type of passive income and it’s by far the most broad of the passive earning methods. If you’re considering working just one time, and having that work pay off for months or years — even decades — this is the option for you. Below are some of the best examples of residual income and how it can power your savings or salary.

  1. Consider writing a book — either in print or online — and selling that book to reap profits. While publishing in print will require high fees paid to publishers and distributors, publishing online results in pure profit each time a book is purchased. Simply write one book, sell it on a website, and your investment of time and words will pay off over the long-term with each purchase resulting in a profit that goes straight to your bank account.
  2. Sell your photographs or artwork online. You’ve already produced the work, and now you will simply monetize it. People will need to pay to use your photograph online, or to use a print of your artwork on their website. Each time they decide your work is worth paying for, you receive a small royalty payment. As the internet is vast, it’s likely that several of these payments can be expected on any given day.
  3. Many insurance companies — and places with revolving memberships, like gyms — offer their employees a commission each time a member renews his membership or policy with their company. So long as you sold that person their initial policy or membership, you can count on getting an annual bonus each time they renew. You worked for that membership just one time, but the reward are long-term.

Leveraged Income

Another popular method of earning passive income is to engage in a leveraged income setup. Using this type of passive income, you simply resell a product that someone has already produced using their owns skills and talents. This can be as easy as setting up an online storefront that promotes the product; with each sale of someone else’s work, you get a commission that goes straight to your bank account. You simply set up the store once, and the profits will flow as long as the products are kept updated and refreshed — and relevant to consumers’ lives.

An example of leveraged income include an author who may decide to hire a network of resellers, or affiliates, to sell his book to interested consumers. It saves him the hassle of dealing with distribution companies, and it presents an opportunity to spread word of his book organically. You’ll set up a simple store front online, and this one-time effort will generate regular commission with each purchase from your individual store.

Active Leveraged Income

Though this is the least passive of the three, active leveraged income does involve a high earnings opportunity for those who participate. It can be as simple as creating a dance recital, convention, or even a casual reception of people interested in the same topics or hobbies as yourself. You simply charge admission for a one-time event and that income goes directly to your bottom line. And if you’re promoting a product, it’s likely that this one-time investment will lead to greater sales of that product over time and result in higher residual income earnings as well. If you’re promoting someone else’s product at an event like this, your leveraged income levels will likely increase.

It’s important to remember that even your residual and leveraged income earnings will need to be increased by promotion and word of mouth, lest they languish and stop earning you as much money over time. Using a method of active leveraged income results in a one-time earnings increase and, if used correctly, and reinvigorate your residual and leveraged income earnings.

No matter which type of passive income you choose to pursue, know that it is a wise decision that will positively impact your budget and annual earnings. These types of income are great for people with limited time and the need for a larger annual salary. And they eliminate the hassle of a second, or part-time, job. It’s generally a win-win situation for all involved.

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