Passive income is a new concept for many people. Some believe that it’s just a pipe dream, while others have the mindset that passive income is evil in nature because you do not have to work for your income later in life. I often hear the phrase, “I believe in making an honest dollar”, which basically translates into, “I think you’re scheming to get rich without working for it.”

Do you want to know the truth? Passive income is actually very difficult to create. It takes a well-thought-out business plan, it takes hard work initially with no guarantee of success, and there’s often scoffing along the way from all the people that think you’re crazy for trying something so unheard of.

The Typical Job

The majority of people make a living by working the typical 8am-5pm job (I don’t think the 9-5 job exists anymore). They have a set wage and can only increase their earnings by either getting a pay-raise or a promotion. Here’s the problem though. At some point, your current position just won’t pay out any more money. After all, each job is only worth so much, no matter how good at it you are. As for the promotion, yes, you might increase your earnings, but you are also taking on more responsibilities, which means that you’ll be spending more time at the office rather than with those that you love.

The typical job has a time for money exchange. If you want more money, you’ll have to work longer hours. If you’d like more time away from the office, you’ll naturally make less money. It’s just how it is in the typical job.

Making Millions with a Job

No, I didn’t mess up on the title. It is possible to make millions within the typical job, but it often takes 40+ years of consistent saving and investing. If you like this method, then you can stick with your job, but I’d like the possibility of making millions much sooner with the passive income approach.

Making Millions with Passive Income

With a job, income is linear. Every week, the job pays exactly the same amount as it did the week before. If you put a certain percent of your earnings into a savings account, then that fund will grow linearly as well (well, it will grow a little bit, but at what rate, 0.25%??)!

With passive income, earnings are exponential. Let me try to explain this with a Warren Buffett example. When he was a young man, he bought a pin-ball machine and put it in the barbershop for the waiting customers to play. Each week, he earned a moderate amount of money (when adding up all of the change) from the machine. If he spent his money on gumballs and slingshots, his income would have been relatively linear as well, but he used all that change to buy another pin-ball machine, and then another, and then another. Soon, his income was 15x the amount of what it was initially. He then used that money to buy a plot of land and rented it to a local farmer for a hefty amount each month.

The pin-ball machine money was passive. Little Warren made his initial investment on the machine, and then it kept bringing in money for many years after that. Since he did not need to work for that pin-ball income, he could easily take the time to invest in many others and multiply his income tremendously. The time-for-money exchange was non-existent, and it led to unlimited earnings! This is how millions of dollars are made in passive income. Find a method for making your money, take yourself out of the equation so that it can earn an income without you, and then duplicate the process again and again and again. Follow this plan, and you’ll be a millionaire in no-time.

Are you ready to make some passive income? Do you have a plan in place?

This post was written by Derek.