Until writing this post I considered passive income to be income/money that I didn't have to "work" for, as in a traditional 9-5 (or in my industry 7-6) job. What passive income plans entail is to have saving and principal money that earns interest and dividends.
For 2007 I earned $2,919 in passive income, which is the equivalent of more than a month of expenses for me. This was earned through laddered CD's which contain my house down payment, a money market which contains my emergency fund, and an interest baring checking account which contains my monthly expenses budget.
For the time being I do not include in my passive income calculation any money earned from my retirement plans (401k and Roth IRA) since I don't actually have access to them until I retire. As I progress I want to grow my passive income so that it's about 20 times what I earned for 2007 and invest more in non-retirement brokerage accounts.
Grant was kind enough to share his thoughts:
I have a slightly different perspective on passive income. I view it as money I can make while I sleep (even if it requires a little work here or there). For example, owning a business like a gas station or car wash, owning real estate, earning residual income on intellectual property, etc. Of course, income from investments like yours also fit in my definition.
I agree with Grant – owning businesses is a type of passive income, just not that type of passive income that I personally want.
Before posting this article I did a little recon about other types of passive income besides owning a business and earned interest and discovered something very interesting from Wikipedia. “There are three types of income—earned, portfolio and passive income. Most types of passive income are derived from rental/property, while other types of passive income are derived from royalties from patents or license agreements.”
So while finding out more ways to obtain passive income I learned that what I considered passive income is not passive income. What I considered my type of passive income is actually portfolio income. I guess I’ll be modifying my goal explanation to be financial independence when investment/portfolio income = desired lifestyle.
What about you, what are your plans for passive or investment income? How are you going to achieve financial independence?
PS check out this article, How to Earn More and Work Less at About.com – it has some interesting ideas of how to obtain passive income.