One of the most beneficial factors of being self-employed is that it opens up the possibility for making passive income.  As the name implies, this is income that is generated without you having to do any work (after the initial set-up).  You do some work up-front to set up a passive income system, then let it run on autopilot and forget about it.  Your system grows your bank account without you having to think about it, and you can move on to setting up your next passive income system.

Passive income is powerful.  This is how people get rich.  It’s not a get-rich-quick scheme, but with time and effort you can build more and more passive income systems and build wealth.

Examples of Passive Income

Here a few common examples of passive income systems:

• Businesses that don’t require your input. You own the business and do the work to set it up, but then you leave it in the hands of other people to manage it.  Or you might create an online business that runs mostly on autopilot, with only a few hours here and there to keep it running smoothly.
• Real estate. Real estate can be a risky investment, as many people found out when the housing bubble burst in the past few years.  But if you play the market well, you can profit from real estate.  You can buy cheap houses, pay contractors to fix them up, and sell them for a profit.  Or you can rent out properties and pay a property manager to do the landlord duties (such as unclogging toilets).  Either way, if you invest in the right properties you can then make money with relatively little effort on your part.
• Stocks, bonds, mutual funds, and other investments. When you put money into the stock market, it’s not guaranteed to increase in value, but generally over the long term it does.  For some of these investments, such as mutual funds, all you have to do is put your money in and someone else will manage it and make sure it grows.  You usually have to pay a fee for this manager, but it’s worth it because your money will be growing without you having to do anything.
• Savings account at your local bank. Even a simple savings account at a bank is a form of passive income.  All you have to do is open an account and put money in it.  Your money will grow automatically as it earns interest.
• Royalties from intellectual property. Books, music, patents, etc. can all earn you royalties when people buy or use your creations.
• Anything else that appreciates. Anything that gains value over time, such as antiques or rare coins, can be considered passive income.  Be careful, though; you need to make sure there is a market for your valuables.  If you have a huge collection of valuable items, but no one wants to buy them, they are actually worth nothing.  Collectibles are only worth what someone is willing to pay for them.

The subject of passive income is far too big for me to cover in one blog post.  In fact, there are many entire blogs devoted to earning passive income.  I recommend reading The 4-Hour Workweek, Rich Dad Poor Dad, and The Smart Passive Income Blog for more information about passive income.