DISCLAIMER: I am not a financial advisor and this should not be taken to be financial advice. You should consult a financial professional for advice. I am a financial amateur. These are my thoughts and opinions on money that I have recorded here for my children, with the hope that my thoughts might help them. They are responsible for the results of the advice they choose to follow. Always worth keeping in mind: Past performance is no guarantee of future results. Your mileage may vary. The map is not the territory. Keep your eyes open. Smell it before you take a bite.
To my children:
It’s probably true that you can’t get rich quickly or easily—otherwise everyone would be doing it, but I do think that some ways of making money are definitely easier than others. Passive income is money that you make while doing nothing. Investing in the stock market is an example of passive income. You don’t have to do anything more than put your money in at a low value and take it out later at a higher value. If you buy a house and rent it out, and hire a property manager, then the rent you collect is passive income. The property manager manages the property, you pay them for that, and any extra money is the money you make. You could make money passively by loaning money to someone and charging interest. Because of the interest, they pay you back more than you lent them. There are many other examples of passive income. It’s just any way that you can make money without spending your time.
There are also semi-passive sources of income, like writing a book and then collecting royalties from a publisher. You write the book once, but you get paid more than once. You get paid every time a book is sold, and books can be sold while you’re asleep or on vacation or doing anything you want. You don’t have to be writing a book to get paid. Compare that to selling hamburgers: Every time you sell a hamburger, you have to make the hamburger. If someone orders 2 hamburgers, then you have to make 2 hamburgers. When you sell 2 copies of your book, you don’t have to write 2 different books. You sell the same book over and over.
Active income is probably what you’re most familiar with. Someone pays you to flip hamburgers or work at a cash register or sit at a desk with a computer or fix their dishwasher, something like that. Nothing wrong with this type of work—it is essential to many products and services—but it does take time. Hamburgers don’t flip themselves. If you are taking on a job that requires you to be active, then from a financial point of view, you want to pick the job that pays the best. But it’s worth keeping your eyes open to the possibilities of passive income, since passive income sources don’t require you to be there or do anything on a day-to-day basis.
Bottom Line: There might not be a quick and easy way to make money, but some ways of making money are certainly easier than others, and it’s worth exploring them. Passive income is easier to earn than active income.