Pay for nothing, click for free
Time is money, as the old saying goes. But there is more than one way to earn a buck. Most everyone is familiar with the traditional model that involves trading chunks of your life for a paycheck, also known as “active income.” Fewer people are familiar with the idea of ”passive income,” or earning money from investments, rental property, intellectual property, and other sources that require minimal time once they’re up and running, but still get paid.
Passive income is not just a 21st century idea. In fact, the model goes back millennia. In ancient Egypt, wealthy landowners leased land to tenant farmers—and it was much the same story during the eras of the Roman Republic, the Roman Empire, and feudal Europe.
Perhaps unsurprisingly, rental property remains a mega-popular passive income strategy, and it remains true that establishing passive income streams tends to require an initial investment. But there are some more innovative ways to earn a low-effort paycheck—it seems Thomas Edison has a lot to teach us. More on that below.
By the numbers
1.6%: Current average dividend yield of the S&P 500
4.8%: Average rate of annual home value appreciation in the US over the past 36 years, according to economist Robert Shiller
5%+: Annual interest rate you can currently get on your savings from various online banks
20%: Current maximum tax rate on qualified dividends, which is lower than most income tax rates
$34: Average hourly wage in the US
405,000: Number of people following the passive income subreddit, making it in the top 1% of most popular boards
Check out
Looking for a break from the 9 to 5
The fantasy of leaving one’s 9 to 5 gig is ubiquitous. Who doesn’t daydream about having one last happy hour beer with coworkers, trashing Slack, and breaking free from the time-for-money paradigm once and for all?
Passive income streams can also act as a safety net in uncertain times, helping you weather economic storms caused by political instability, massive technological change, or some magical combination of both. But if you’re not eager to become a landlord, or simply don’t have the extra capital to snap up an entire apartment building, you can still dip your toe into the passive income waters by investing in dividend stocks or dividend-focused ETFs. , high-yield bonds and/or peer-to-peer loans. Even a simple online savings account pays more than 5% annual interest these days, depending on the size of your balance. Give your initial money some time to compound, and you can realize healthy passive income for years and decades to come.
If all else fails, there’s always publishing or patenting some of your own IP. Consider Thomas Edison’s 1877 invention of the phonograph, which is an example of using intellectual property for passive income. Edison patented the technology and strategically licensed it to companies such as Columbia and the North American Phonograph Company. These licensing agreements allowed him to earn royalties for every phonograph and record sold, helping him build a fortune of $12 million (or $242 million today) by the time he died in 1931.
“The value of an idea lies in its use,” he said, and the same goes for your self-published minotaur erotica that sells for $3.99 a digital doll. The potential to earn money from patents today depends largely on the industry and technology involved and can still lead to big cash, but you may need the legal funds to enforce your claims in court—ie start-up capital may be required here as well become . Sigh. Maybe just stick with the minotaurs. You’ve got a good thing going there.
Quotable
“The only real asset you have is your time. The hours of your life.”-Vicki Robin, Your money or your life: transform your relationship to money and achieve financial independence
Pop quiz
What is a common form of passive income?
A. Hourly wages from your Quiznos job
B. Income from your work as a freelance Vibes consultant
C. Sell ersatz vintage tees on Etsy
D. Dividend payments from Apple stock
Find the answer below!
Brief history
3,500–500 BC: In the agricultural economies of ancient Mesopotamia, landowners leased to struggling peasants. The system remains in place for several millennia and probably to this day.
1878: Thomas Edison takes out a patent on the phonograph and sets himself up for years of great passive income money.
1986: Joe Dominguez and Vicki Robin release Your Money or Your Life as a set of cassette tapes, a pioneering financial education program that focuses on earning passive income through high interest bonds.
1992: Your Money or Your Life comes out in book form, proves hugely popular, sells millions of copies over the next 30 years, and even earns a shoutout from Oprah.
2003: Barclays launches one of the first dividend-focused exchange traded funds (ETFs)making it easy for passive income seekers to buy a basket of high-performing dividend stocks.
2022: In a profile marking the 30th anniversary of the publication of Your Money or Your LifeVicki Robin told the Washington Post that the book’s original environmentalist message got lost in the shuffle.
Fun fact!
The Roman emperor Nero is known for many things – mostly murder – but he also levied a tax on urine in a particularly ingenious, if not absurd, form of passive income. The tax was later reinstated by the emperor Vespasian, who fondly said of the money the tax generated that “pecunia non olet,” or “money doesn’t smell.”
Look at this
The Ancient Roman Guide to Passive Income Streams
Money does not smell, regardless of its origin. Just ask a few Roman emperors whose passive income stream, in the form of a urine tax, illustrates an important financial truth, as explained in this video.
Opinion poll
What is your own most innovative passive income idea?
- Rent out your snow blower
- Train squirrels to collect change
- Publish YouTube content on how to earn passive income
Give us a glimpse into your entrepreneurial brain.
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Today’s email was written by Catherine Baab-Muguira, covering money and culture for outlets around the world (and actively listening to Madonna at the gym). It was edited and produced by Morgan Haefner (who feel pretty passive about New Year’s resolutions).
The correct answer to the pop quiz is D., Dividend Payments from Apple Stock.
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