No one offers a better definition than the American Internal Revenue Service (IRS) about passive income -”an income that is generated by any activity in which the taxpayer did not actively or physically participate”. By this definition, we may include all other sources of income such as rentals from an investment property, royalties from a copyrighted book or article, payments from a patented invention, pensions from retirement, dividends and interest income from stocks or portfolio investments, and income from a business not actively managed by the owner. Marxism call this “parasitic” behavior.
It is essentially an income stream that “automatically” produces enough money to support a certain lifestyle without any effort to get that money. Passive income contributes towards the attainment of another personal goal for most people – financial independence. It is a state when anyone can “self-finance” the requirements of his daily living activities because of either of two things or both:
- -Owns enough assets that can generate an income stream that is enough to satisfy normal consumption requirements; and/or
- -Assets are large or sufficient enough that they cannot possibly be depleted over the owner’s lifetime future consumption.
Now, who does not want to be in that position? When do you expect to reach that state of “self-financing”? At age 35? 45? 55? 65? 75?
Millionaires are created at a much faster rate than ever before. Many industrializing countries offer great opportunities for enterprising individuals to build wealth faster. The most number of newly-minted millionaires are found in China, India and Brazil. Economies of these countries have undergone basic structural reforms that offer wealth in commodities, commerce, trade, and industry.
But it does not take much luck to be rich enough to retire. What is needed is sensible financial advice and a lot of common sense. Even ordinary working people have a fair shot at financial glory if they can sell a business idea. Examples abound especially with Internet marketing. Dr. Edward de Bono (inventor and proponent of “lateral thinking”) states that the Internet is free but there is a lot of value in it. Values such as information, education, entertainment and socializing can be commercialized for profit but one has to think about how to do it.
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