Passive income is earned when you don’t have to actively convert your time for money. This can be done in two ways:

 

1. Money focused: Putting your money to work for you (Robert Kiyosaki’s I quadrant). Some examples are:
   • Investment properties
   • Dividend paying stocks
   • Bonds
2. Time focused: Setting up a business ie. performing an activity for a short time (setting it up) which requires very little activity thereafter to maintain the income flow. Some examples are:
   • setting up a website with affiliate advertising.
   • growing a physical business (Robert Kiyosaki’s B quadrant) to the size where you can have managers who run it.

In each of these cases, some amount of activity is required on your part to set it up (either earning the money that can work for you or setting up the business), after which you can reap the rewards long into the future.

One myth however is that when you earn passive income, you don’t have to do anything ever again, this is one of the worst things to think. Even passive income still requires some activity. For example, you still have to check your stock portfolio every so often to determine whether they are performing adequately or whether adjustments need to be made. For your rental property, you will get tenants requiring your attention, tenant rotation, property maintenance, etc. For a business, you would still need to track the finances, give advice and direction, etc. You need to determine the amount of time and type of activity you are willing to put in when determining the passive income streams you want to make use of.

I am on a mission to have my passive income be greater than my expenses. This for me is true financial freedom because even if I don’t earn any active income (even though I always want to), I can still live the life I design and it will leave me with the time to do the things that I want to do.

So I track my income, whether it’s active or passive, just as I track my expenses which gives me a target to achieve.

You can follow my YouTube Passive Income Playlist which has some excellent ideas around passive income.