Passive income

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Please improve this article if you can. (May 2008)

Passive income is a rent received on a regular basis, with little effort required to maintain it. It is advocated by some authors, especially by Robert Kiyosaki.

Some examples of passive income are:

Rental from property;
Royalties from publishing a book or from a patent;
Earnings from AdSense or other internet advertisement on your websites;
Earnings from a business that does not require direct involvement from the owner or merchant;
Dividend and interest income from owning securities, such as stocks and bonds, are usually referred to as portfolio income, which can be considered a form of passive income;
Pensions.

Passive income is usually taxable. The American Internal Revenue Service defines passive income as one "generated by activity in which taxpayer did not materially participate". ^[1] Other financial and govenment institutions also recognize it as an income obtained as a result of capital growth or in relation to negative gearing.

1 An Internet phenomenon
2 Emerging cottage industry
3 Motivational vector
4 Critique
5 See also
6 References
7 External links

[edit] An Internet phenomenon

Edward de Bono in his book The Handbook for the Positive Revolution states that "at some point value must be created in order to be distributed and enjoyed". ^[2]. There is a lot of real value on the Internet, and a lot of it is free to any websurfer. There is value in free information, free education, free entertainment, free socialization, and social interaction platforms. Since the beginning of the commercialization of the Web, entrepreneurs have been trying to find viable business models of selling the web content and services. ^[3]. Some of the problems of selling the online content can be attributed to high cost of software, high cost of qualified labour, expensive equipment, office space etc. These can be minimized in one person operations which use free software and have very small business overheads. In such cases, even a relativelly modest income, together with frugal lifestyle, might be sufficient enough to form a basis for a viable passive income model.

[edit] Emerging cottage industry

With an advent of Web 2.0, the concept of a passive income became a nucleus of an informal grassroots, (bottom up) movement and an emerging cottage industry of loosely coupled, independent individuals, who use a combintion of their life story, personality, interests, and practical knowledge, to produce an engaging content and an alleged passive income. Appearing honest, transparent, and promissing nothing, these individuals report in their blogs, podcasts or websites, their income sources, methods and strategies they use, to any reader or listener, without any additional requirements. There are no registration, subscriptions, or any other kind of fees. They claim to obtain their income mainly through advertising, remuneration for referals and recommendations, and through donations from appreciative readers. Steve Pavlina represents but one example of such activities; although, it is not clear how long a passive income generated in such manner can remain so without any interventions, addition of new material, or site maintenance. The long tail effect could partly explain survival potential of such one person or family businesses.

[edit] Motivational vector

In psychology, this concept can also be percieved as a powerful motivational vector, similar to the desire to achieve financial independence, or to have greater freedom of choice.

[edit] Critique

As a concept, some form of passive income can be perceived as one of the fundamental benefits of capitalism, where capital of some description, gathered or acquired by other means, generates monetary value for its owner, regardless of his activities. The concept of passive income evokes controversy from a moral standpoint, being considered parasitic (not producing, but benefiting from the work of others), as well as from economics perspective, as being unrealistic on a universal scale, or utopian. If everybody lived of some sort of passive income, how would things get done and produced?

Passive income has the potential to be used as an enticement for fradulent internet scams.^[4] It can also involve independently publishing or self-publishing books containing knowledge or advices of unasessed value.