“what’s makes
rich gets richer?” I’ve recently watched a
video of Robert G. Allen, the author of the
best selling books Nothing Down and
Creating Wealth as he discussed the
difference between linear income vs.
residual income.
I came to these two terms before when I
first knew about Cashflow Quadrant of
Robert Kiyosaki. To him, there are two
main divisions of the cash flow. One is
Active Income where you work for money
and one is Passive Income where money
works for you. In Robert Allen’s video,
Active Income is also called Linear
Income and Passive Income is also called
Residual Income.
Now, how do you distinguish between the
two? Ask yourself the following questions:
How many times do you get paid for
every hour you work ? If your answer is
only once, then it’s active income! In
active income, one hour of effort equals
one unit of money one time. However, in
passive income, you will get paid many
times for every hour of effort. A doctor
can only see one patient at a time so he
gets paid for every patient that he has.
Do you have to be present to earn
income ? If your answer is yes, then that’s
active income. If your answer is no, then
that’s passive income. A lawyer earns
active income by presently attending to
his clients.
Did you get the picture? Passive income
is a stream of income that you can own.
It can be a “hands-off” income. It’s an
automatic pilot. The secret of the rich is to
increase their streams of income. This is
done not by increasing their active income
by taking a second or even a third job but
by increasing their passive income. Now,
where can we get this passive income?

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Here are some of the sources:
Interest Income . Yes, we can earn passive income from the interests of our savings deposits. We can also earn passive income through the interests of our bonds.

Real Estate. Real estate investments can also earn us passive income. My ideal real estate is a self-liquidating asset. That is you buy a property, pay the down payment only not the whole contract price, and rent it out to tenants. The monthly rental income from the tenant itself will be the one paying for the monthly amortization of the mortgage to the bank. The rental income will be our passive income in this case.

Websites . With the coming of industrial age, successful internet entrepreneurs have also built passive income thru their blogs or websites. I have seen a few of them and one perfect example might be one of the largest adsense earners. His website, one of the largest dating websites called Plenty Of Fish , attracts millions of visitors per month enabling him to earn an easy US$1 Million per year.

Networking . This is also called MLM of Multi Level Marketing System. This is another form of passive income yet a lot disagrees to its pyramiding concept. It’s like building a team of sales people who will provide you with huge passive income as your group and sales increase.

Royalties . Ever wonder why even though Elvis Presley was now dead, he still earns income? Yes, that’s the power of passive income! His albums that he did before when he was still living continuously earn royalty income for him. For every album sold, he gets a royalty fee that’s why even he’s dead, he is still earning. The same goes for the author of books. Just imagine how rich J.K. Rowling, the author of Harry Potter, has become. She might be getting pennies for every sold copy of her book but it gets multiplied a million times as her Harry Potter is a best seller book with millions of copies sold. Not only that, she also gets royalty fees from the film Harry Potter series itself. Another source of royalty income is thru franchise fees. The original owner of the business gets a royalty income for every franchisee that he has. Just imagine how rich are the original owners of McDonalds now that it has thousands of franchisees worldwide.

Dividends . We can also earn passive income through our stock investments . Companies share their income to their stockholders by either giving them cash or stock dividends for every share they own. Alternatively, we can also earn it through the dividends of our mutual funds . Or probably from insurance policies which also gives dividends.

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Great ideas.