Comments on: Real Income You Can Spend Vs. Growing Your Net Worth

By: patricia

patricia — Thu, 09 Jun 2011 07:29:43 +0000

Great article. Thank you for the info.

By: caleb

caleb — Fri, 14 Nov 2008 11:43:51 +0000

Fantastic point about passive income being a spectrum, with 100% passive being at the far end.

I’d like to add that as you approach the other end, “sweat equity” increases, until you hit 0% passive income–also called “Active income”.

Don’t forget everyone starts with 24 hours of “time capital” to trade with as they wish.

Taking Brian’s concept one further: you need to make sure you still have money left over, after paying the bills, for “compounding” effects. This goes for TIME capital, too.

Make sure you have enough TIME “left over” to invest in compounding systems. Like business or real estate.

Living paycheck to paycheck leaves nothing left over. Nor does working 12 hour days.

If you lack “left over” money, then cut expenses or make more money. If you lack “left over” time, then cut back on “time expenses” (i.e., your job).

Or you can borrow capital (money AND time).

By: Brian Armstrong

Brian Armstrong — Thu, 13 Nov 2008 06:35:59 +0000

Good point Caroline. How “passive” a business is exists along a spectrum. There is definitely more passive and less passive.

I could probably disappear from the tutoring site for months and it would continue to grow. If I disappeared from the blog it would stop growing. There are ways to make blogging more passive too, like getting guest authors and hiring a moderator, but I probably wouldn’t want to do that here.

By: Caroline

Caroline — Wed, 12 Nov 2008 11:20:35 +0000

Just like to point out that although I understand your meaning for passive income it does not necessarily mean you do not have to do any work. I think most of us understand passive income to be where there does not have to be any day to day work, rather the odd update/maintenance.

By: Brian Armstrong

Brian Armstrong — Tue, 11 Nov 2008 20:28:06 +0000

That’s true. It’s even better to reinvest those earnings. In other words, have enough passive income to not only cover your expenses but to also reinvest.

Now you have what I like to call a positive feedback loop. The more you earn, the more you invest, which earns you more, so you invest more, etc…

Wealth that builds upon itself at an ever increasing rate without working.

By: Matt Thomas

Matt Thomas — Tue, 11 Nov 2008 08:46:49 +0000

Brian,
I liked your point about blogging as passive income. While it requires you to put some work into it, it is in essence a “fixed cost” since it doesn’t require more of your time to make more money or gain more viewers from each post.
The thing about income however, Caleb mentioned that income often requires sweat equity, which I don’t think is always necessarily true. If you are making a salary from an employer, then yes. However, if you are running your own operations, automating (as you mentioned in the last post), outsourcing and delegating can all reduce or even eliminate the amount of sweat equity you need to contribute in order to earn income.

I do agree with Caleb in that there is generally a trade-off between income and future growth. After-all, you can’t keep the interest payments and get compounding at the same time.