Don’t Pass on Passive Income

If you want to achieve financial independence more quickly, it’s important to understand the types of passive income and how they differ.

Passivity in Passive Income Types

Let’s start by looking at different types of passive income broken down by the level of “passivity” that income source is defined by. 

	Passivity	Description	Examples
1	Completely Passive	After initial setup or qualification, this income comes in at a set time for a set amount like clockwork.	Social Security, employer pension
2	Diminishing Passive	These assets may provide completely passive income but the returns may diminish over time.	Royalties from creative work (writing, film, music etc.)
3	Maintenance Passive	This income is generated from an asset that largely “runs itself.” However it may require updating, upkeep, or hiring external people to keep it vibrant and relevant.	Rental property, e-Learning courses, subscription services, any business run mostly with hired labor
4	Flexible “Passive”	This income may not be passive but is so flexible that doing it doesn’t impinge on your desired lifestyle. The work can often be picked-up or dropped as desired.	Contract work, gig work (rideshare, food delivery, performance or speaking engagements), remote/online work  (transcription services, copy editing etc.)
5	Invigorating “Passive”	This income may be the least “passive” but because the work is so invigorating for you, it hardly feels like work and you expect to be able to continue it in your “retirement” years.	Hobby for income (woodworking, art for sale), some form of teaching, coaching, or mentorship

Passive Income Benefits

From a purely financial perspective consider the two major benefits to having passive (or partially passive) retirement income.

• Smaller Nest Egg: Reliable, passive income can be subtracted from the total amount of income your nest egg needs to directly generate. This allows you to retire with a smaller nest egg. In fact, you may realize that with a little passive income you are much closer to reaching financial independence than you realized.
• More Flexible Use of Nest Egg Assets: Passive income can give you increased flexibility in determining when you sell your invested assets. Put differently, if your passive income is large enough to support you in a pinch, you don’t have to sell your investments in a down year when they are worth less. Instead you can wait until the market is up and your assets have appreciated.

Actions

Write down the types of passive retirement income streams that are of interest to you. Then, consider the physical and mental skill sets and time commitments needed. Remember, you want to ensure that regardless of the level of passivity, the income is as reliable as you need it to be.

If you are self-employed, consider ways that you could train and hire others to perform the work for your business. If your business has a recognized brand, equipment, technology, methodology, or customer base, there are likely to be people who would like to leverage those assets. You may hire them directly or license a part of your business to them. 

Finally, do additional research on passive income by finding additional articles or books describing ways to generate passive income. You may be able to leverage the assets or skill sets you already have or learn about a few skillsets you need to gain additional expertise. Either way, once you’ve honed in on a few promising opportunities, write those down and try them out!

There’s Nothing Wrong with Getting Help

If you are having trouble making ends meet, there are three possible solutions: You can earn more, spend less, or do a little of both. Therefore, before you commit to leveraging the financial support listed below, do a few Google searches to find creative ways to earn more income or reduce expenses. You may find some great ideas from other creative people out there with a situation not entirely different from your own.

That said, there are going to be times when you have done all you reasonably can. And if you’re in this situation, there are three things to do before you actually get the assistance you need. For each question below, write a brief answer in the notes field (available to logged in users) above to help you frame your challenge.

Why can’t I make ends meet?

• The question may seem obvious but there are a variety of reasons you may find yourself in this situation. And that’s ok. What matters is that you’re honest with yourself. For example:

• • I’m getting ready to live on my own for the first time. I need to save money and learn how to live within my means.
  • I’m already fairly frugal but I need to earn more money.
  • I already earn decent income but I spend beyond my means on non-essential purchases.
  • I’ve had some unexpected expenses that have temporarily impacted my finances.
  • I’m using some of my income to pay for previously incurred debt.

Whatever the case may be, knowing the answer to this question may help you determine the type of support that’s best for you.

What type of support do I need?

• Even though your challenge is a financial one, there may be multiple ways to receive support.
  

  Nobody has ever gotten anywhere without some help. Don’t be afraid to use all resources available to you.

  For example:

• • A direct gift or grant that doesn’t need to be repaid
  • A subsidy for a good or service you need (e.g. housing, food, utilities, childcare)
  • An adjustment to the payment or repayment terms for a good or service (e.g. housing, food, utilities, childcare, medical debt)
  • A loan that you will pay back in time
  • A good or service you need you can barter for by offering something other than cash (e.g. you babysit or do errands for your friends for “free” while they let you stay at their house for a week or two).

What is my post-support plan?

• More specifically, what is your plan to repay the support you receive (if needed) or, what is your plan to get into a position such that you’ll no longer need the support? Depending on the support you need, this could be a short-term plan or a long-term plan. For example:

1. • Work more hours or get a second job or side gig to earn more money
   • Get a new, better paying job or ask for a raise or promotion
   • Take educational courses or training to be more qualified for a better job
   • Finish paying off past debts so you can use your existing income to pay for your life today

There’s a good chance you’re already doing some of the suggestions listed above. And if that’s the case, let the resource that is providing you with additional support know! They will be glad to know you’re thinking ahead about how to improve your situation.

Support Resources

Now that you have a clearer idea of why you need support, the type of support you may need, and have a rough idea of your plan to eventually move beyond needing that extra support, you are ready to review the resources below and consider which ones may be appropriate for your situation.

• Direct Cash: This is likely to come directly from friends or family. You can ask them directly or you can set up online campaigns through sites like GoFundMe.

• Housing: Search the web for terms like “local housing services” to find out about non-profits or government agencies in your area that may be able to offer long-term affordable housing options or temporary housing options.

• Food: Sites like Feeding America can help you find your local food bank and the U.S. government can provide help through the Supplemental Nutrition Assistance Program(SNAP).

• Services: If you need help for essential services like household utilities (heat, water, electricity etc.) it’s best to contact the utility company directly and see if they can offer you a discounted rate. After that, contact your local city government offices to see if there are local programs available to help.

• Debt Owed: If you have debt, you may want to contact the company you owe money to first and try to negotiate. If you’re not comfortable with that or you’ve already tried it, leverage the resources available on the U.S. Government’s FTC site about dealing with debt. Whenever you’re searching for help with debt it’s best to ensure you’re getting your information from a reliable and trustworthy source.

• Loans: If you had unexpected expenses or you know you will soon be able to make ends meet plus a bit more, taking out a temporary loan can be a reasonable option. Just make sure you are not creating a bigger problem than you already had. Depending on your situation, you may consider a Personal Loan (a great review of choices are here), or a Home Equity Line of Credit (only an option if you own a home and owe less on it than what it’s worth).
  
  
• Unemployment Benefits: Depending on your situation, you may be eligible for unemployment benefits. Typically, unemployment provides a certain percentage of your wages from a previously held job, for specified period of time. Each state sets their own limits for how much you must have earned from that previous job to be eligible. Additionally, there may be other requirements like needing to prove you’re looking for new work. To find out if you’re eligible, search for “Unemployment Benefits” followed by your state’s name.

Benefits & Drawbacks of Different forms of Support

Finally, before you start taking a benefit from any of the resources available to you, consider some of the benefits and drawbacks of each. This may be helpful to discover the resource that is best for you.

Resource	Benefits	Drawbacks
Friends & Family	Flexible repayment terms Flexible benefits (direct cash, temporary housing etc.)  May or may not involve direct repayment Request for help can be set up online through sites like GoFundMe	Can complicate relationships Online campaigns can make your situation more public than you would like it to be
Government Services	May come from Federal, State, or Local governments Can come in a variety of forms including direct payments, assistance with cash for food, subsidized housing etc.	Rules for continuing to receive benefits can be cumbersome Income limits may apply
Local Charities & Non-profits	Closer contact with community supporters may expose additional resources you weren’t previously aware of	Resources may be limited
Businesses	Can reduce or eliminate certain fees or create modified terms so you can continue to receive services (e.g. home utilities etc.) or repay for previously used services in a way that is more feasible for you	Business or company you need services from (or owe money to) may not have significant incentives to help you

We’ve just covered the basics in this article but hopefully the picture is clear: If you’re struggling to make ends meet, there are resources available that can help you. Take the time to research online and find a good fit for the specific financial issue you’re facing. Don’t be ashamed to ask for help. Remember that there are many successful people who hit a rough patch and overcame it to become financially healthy and a whole lot more. You’re not alone and you will make progress!

Details

The MoneySwell Budget Planner tool is an easy budgeting tool. And since spending happens with after-tax dollars, this is the place to think about your income in after-tax dollars too (i.e. your “net” income).

Income Sources

Employer Paycheck Income: If you get a paycheck from an employer, taxes are deducted from your gross income automatically. Therefore all you need to do is look at the “Net” line of your paycheck and enter that value. Use the dropdown to select the frequency you’re paid that amount.

Self Employed or “Non” Paycheck Income: If you’re self employed you’ll need to estimate your net income and ensure you’re allocating enough for taxes. The same applies to any other income you may receive like cash tips or side gig work.

Note: If you want to project net income from a job you have not yet started or you’re not sure how much you should allocate for taxes for non-employer based pay, use a paycheck calculator. Remember if you’re planning to allocate a portion of your salary to a retirement fund, or if you will be paying for some of your health insurance costs, these will be subtracted from your gross income along with taxes before you know your final net income.

Notes on Frequency Choices

For any choice you select from the “Frequency” drop-down, MoneySwell will calculate your monthly equivalent income for you. For example, if you’re paid $500 twice a month, MoneySwell will multiply $500 x 2 to show $1,000 of estimated income for the month. There are unique multipliers for each choice. They are as follows:

• Weekly – 4x: Obviously not every month has exactly four weeks so if you want, you can take your weekly net earnings, multiply those by 52 (weeks per year) then divide that by 12 (months per year) to get a more accurate picture of your average monthly net income.

• Twice a Month – 2x: If you get paid every other week, most months this will mean you get two paychecks. However, if you would like to account for the months where you get an extra paycheck, multiply your net paycheck by 26 (total paychecks per year) then divide that number by 12 (months per year) to get a more accurate picture of your average monthly net income that accounts for all paychecks.

• Once a Month – 1x: MoneySwell is summing monthly income so no multiplier is needed.

• Irregular: If you have a job or an income source that is irregular in frequency or amount, estimate the low and high amounts you might expect in a month. MoneySwell will average those two numbers. For example if you typically make between $100 and $200 a month for dog walking, MoneySwell will estimate $150 per month.

Once you’ve entered all your sources of income, make a note of the date and your estimated income in this task’s notes field (available to logged in users). Hopefully you can look back on this number someday and be proud to have seen your income rise.