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Get Rich Slowly: Two Types of Passive Income

Updated on June 20, 2011

Passive-Aggressive Income

 

For those who esteem it favorable to becoming rich slowly, or at least well off, passive income is an absolute must, for this is how the poor or middle-class become rich, and the rich become richer.  Yet passive income holds mysteries, and to understand it better is to achieve it all the more.  Part of this includes understanding that there are two basic categorizations to passive income.

 

First, to understand passive income, let us begin with a definition from which we can work.  Passive income, at its simplest understanding, is income that comes to a person, much as income; yet, unlike normal income, it is not worked for, as with a salary.  Passive income is money that comes in to a person due to his or her investments: money working for that person.  Simply put, the poor and average work for their money, while the rich and soon-to-be rich put their money to work for them.  And, as the old idea runs, the great thing about investment is that money works for us 24 hours a day, 7 days a week, 365 days each year.  Oh, yes.

 

So from this, an understanding of the two types of passive income is necessary to understand.  The first type of passive income is that which pays on a yearly basis –or not at all, as with quarterly stock dividends that are re-distributed back into the initial investment.  Though these two are a bit different, I like to lump them together and call them “Invisible Passive Income.”  This is as the payout is either very rare (yearly) or, if more frequent, simply not seen.

 

This is an extremely valid form of wealth building.  There is nothing –absolutely nothing wrong with this.  In fact, it generally is the better of the two forms of passive income simply as it is either not spent or rarely spent on frivolous items.  Instead, when reinvested, it only adds to a portfolio, and thus, personal wealth.

 

The second form of passive income is the monthly allotment that comes from investments such as owning and renting out a house or apartment complex.  Another example would be when an investor staggers investments in bonds or even newer forms of investment like prosper.com so that every month, money is deposited in a bank account for immediate use.

 

This type of income is perfect for those investors who have spent a considerable amount of money and time considering just what should properly be invested in, and then acting upon this deliberation accordingly.  Namely, this monthly income is the fruit of investment, what every investor ultimately wants: free money, or what seems to be free (before the tax collector cometh, that is).

 

So, as a recommendation, early investors should look to capitalizing on the first, type 1 passive return on income and ignore the second until s/he is basically ready for retirement, whether at the age of 67, 65, 62, 50, or even 40 (for those wisest of early-bird investors).

 

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    • Sean Fullmer profile imageAUTHOR

      Sean Fullmer 

      7 years ago from California

      Thanks, Doug. Yeah, dividends are really a great way to go. Of course, capital appreciation is certainly...well, appreciated, no?

    • profile image

      Doug 

      7 years ago

      Great article and very true. I think that dividends is the best way to earn passive income since there's now work in getting it.

    working

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