Dear Dave,
I’ve been following your plan, and I’d like to find a way to make a little more money on the side. Do you have any ideas for generating some passive income?
Taiwan
Dear Taiwan,
First, I want to make sure you’re not getting involved with some get-rich-quick scheme, like a nothing-down real estate seminar. “Passive income” is a term that’s sometimes attached to those sorts of things.
Passive income is pretty simple; it’s income off of investments. In other words, it’s money you set aside that makes you money. There’s not any other income that is real passive income.
If you wrote a book and got royalties from the sales, some people would call that passive income. I get royalties from the books I’ve written over the years, but the people who would call that “passive income” didn’t follow me around while I was working my tail off to write and sell those things. To me, it wasn’t passive income at all; it was a business. Technically, the government would call it passive income. But they don’t have anything to do with reality.
When it comes to passive income, I only invest in two things — real estate, for which I pay cash, and good growth stock mutual funds. Active income usually takes the form of a small business idea or your career. That’s income that you, yourself, are literally creating.
But that’s how I look at that stuff. Some people may have a different view on it, but I like to keep things simple.
—Dave
* Dave Ramsey is America’s trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover, EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8.5 million listeners each week on more than 550 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.