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What is Passive Income

September 26, 2011 By Shane Ede 11 Comments

One of the terms that is always circulating the personal finance area is the term “Passive Income”.  What is passive income?  Why do we keep talking about it?  How do we get it?

What is Passive Income

Passive Income is income that you don’t have to actively work to attain.  Residual income like royalties on a book, dividends on dividend stocks, and interest earned are all examples of different kinds of passive income.  Some would argue that the work you have to put into all of those to write the book, purchase the stocks, or earn the money to make the interest make those less than passive, but in my definition, any income you earn that is new income, even if it is earned off of old income that wasn’t passive, is passive.

Why Passive Income

Income taxThe reason that we all want passive income is pretty self-explanatory.  It’s additional income that you don’t output any work for.  You purchase the stocks, and the company just sends you a dividend check every quarter.  You write a book, and then the publisher sends you a check based on it’s sales.  You deposit your money, and it accrues interest.  Beyond that initial setup, you do no work to continue the income stream.

How to Make Passive Income

The how of passive income is usually where people hit the brakes.  You see, when people think passive income, they immediately think “easy money”.  But, the truth of it is that there is nothing “easy” about it.  You do have to put in the work to set it up.  Some passive income ideas are easier to set up than others.  If you’ve already got the money, you can pretty easily set up a passive income interest stream.  Or a dividend stock income stream.  But, unless you’ve already written several books, you’ll still have to write the book to set up the royalty stream.

The more passive income streams you have, the less work you have to do to maintain the level of income you have.  With some hard work to set them up, you can stop thinking about side income jobs, and thinking about how you’ll spend your “passive” time building more passive income streams.  It isn’t easy, but it can be very rewarding once you’ve got the streams all set up and working for you.  And, even if you have to do a little bit of minimal maintenance once in a while, you’ll still be earning far more for your time than you would on any non-passive income stream.

photo credit: alancleaver_2000

Shane Ede

I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.

You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.

www.beatingbroke.com

Filed Under: Investing, Passive Income, ShareMe Tagged With: dividend stocks, interest, interest income, passive income, royalties

Cash Back Rebate or 0% Financing?

March 12, 2010 By Shane Ede 3 Comments

Let me begin by saying that I don’t see any real value in buying a car new.  You’d be better off waiting a year or two and buying the same model after the initial devaluation happens.  If you insist, however, and you have to choose between a cash back rebate and 0% financing, here’s how it breaks down.

I’m taking liberties here and using a few assumptions.  The first, and most important, assumption is that you’ll use the cash back rebate as an addition to your down payment.  I’m also assuming a 5 year loan because that’s pretty standard for a new car loan.  I’m assuming that you’re going to use the cash back rebate as an addition to your down payment, because you’d be an idiot not to.  No really.  Why would you buy a $20,000-$50,000 car that will lose at least 10% of it’s value the second you sign the dotted line and then also take the $2500 (Or however much) in cash?  Also, if you do take it in cash, will you drop me a line?  I’ve got some ocean front property in Oklahoma to sell you.

Assumptions aside, the deciding factor here is the interest rate.  The lower the interest rate if you take the cash back, the better that side looks.  Somewhere around 5.8% they are about even over the life of the loan.  Of course, if you make extra payments that will change things as well.  If you can get a rate of 4% or so, the difference is pretty good and you should use the cash back and run with it.  At something like 8%, however, you’d be pretty silly to not take the 0% financing.

In the end, there are several variables that need to be taken into account such as trade in and sales tax.  And this is far from a scientific study I did here, nor is it meant to detail exactly how to buy a car.  What I would suggest is using a loan amortization calculator and punching in the numbers.  For this little experiment, I used a calculator built for just such a calculation at interest.com.

Shane Ede

I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.

You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.

www.beatingbroke.com

Filed Under: General Finance, Personal Finance Education, ShareMe Tagged With: car, car buying, car loan, interest, interest rates, new car

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