I’ve seen a lot of different definitions out there, but I define passive income as being any income derived from an initial investment of time, effort, money, or ideas without additional input of time, effort, money, or ideas.

So, for example, a published book (once you’ve finished the main promotional work) can be a source of passive income. A Youtube video can be a subtle source of passive income. Money put into a dividend-bearing stock can be a source of passive income. A retirement fund can be a source of passive income.

In each of those cases, a significant investment was put into the item up front. Time. Ideas. Energy. Thought. Money. Different initial investments require different things.

Passive income streams are a powerful personal finance tool. Simply put, a passive income stream earns income for you while you’re doing something else. That something else might be another lucrative path toward earning money, it might be retirement, or it might be engaging in a very speculative career path.

A few caveats, though.

First, if you’re not investing money, expect to invest a lot of time and energy. If you want a passive income stream that’s going to give you a long trailing tail of revenue, you’re going to have to invest a lot of time and energy up front without any immediate reward.

Often, the more time and energy you spend up front, the larger the reward and the longer it will last. However, that’s not always true – it’s merely a rough approximation. You can spend years honing a novel to see it only sell a handful of copies. (On the other hand, if you were to just put your first draft of that novel out there, it likely wouldn’t sell any copies.)

Second, many passive income streams are a trickle. If you upload a YouTube video, assuming it’s not a giant viral hit but also assuming that it’s not totally useless, your income from that video is going to be a trickle – on the order of a cent or so every few days. You might earn a dollar a year from that single video.

Not much, right? That’s why you need to bundle these kinds of income streams. If you make a video, make another one. That theoretically doubles your income stream, but it actually does even more than that, because people who find one video are at least slightly more likely to find another video you’ve made. This is true for any creative project you take on.

So, how can you get started? Here are a few things you can do to start launching a passive income stream. These can all be done in your home and without a publisher or other outside source accepting or helping you.

Make some content. Make a video and put it on Youtube. Write an ebook and submit it to the Kindle store and the Nook store. These options let you focus solely on the content you’re creating, as they handle all of the hosting for you.

Again, don’t expect to make a mint from each piece that you write or film, but you can create at your own pace this way. Make a video or do some writing in the evenings and before long you’ll have a small portfolio of things that are slowly earning income and synergizing with each other.

The key thing here is to make sure you’re creating something that others would want to watch or read. A good place to start is to look at the things you’re good at, as people always admire the skills of others.

Buy a share of stock in a dividend-paying company. Put away a dollar a day and in a month or two, you can purchase a single share in a dividend-paying company. Use a site like E*Trade or Scottrade to make your purchase, then just direct the dividends to your checking account. In a few months, do the same thing again, perhaps with a different dividend-paying company to diversify things.

Don’t know what dividend-paying company to buy? Here’s a great list of very stable companies with a long history of paying dividends.

Buy a rental. The way to start this process is to buy a fixer-upper home, invest your own sweat equity into fixing it up, then rent that home out at a reasonable rate.

Since you want this to be truly passive income, the way to do it is to hire a property manager to take care of any issues for you in exchange for a piece of the rent. That way, you just collect the rent checks and don’t worry about it.

All of these ideas have a few things in common. They each provide a “hobby” of sorts where you can sock away your spare time without spending money, but eventually leading to earning money. They each eventually result in something that will earn you a small passive revenue stream. With additional effort, these smaller revenue streams can synergize, increasing your passive earnings.

The big ingredients you need to get started are time and effort.

The post The First Steps Toward Passive Income appeared first on The Simple Dollar.

First of all, what is passive income? You’ll find a lot of definitions of it online, but mine’s pretty simple: passive income is any source of sustained income that you earn without any additional work. You might have to put up a lot of work up front, but once the money is rolling in, it doesn’t require any additional effort to earn money (additional effort might help to increase earnings, but it’s not required for some level of income). Thus, I don’t identify things like being the landlord of a rental property or blogging to be passive income – both require significant and regular work to earn money.

Passive income isn’t a way to get rich. That’s not the point, and anyone claiming you can get rich from it is selling snake oil. For me, it’s an investment of money and time now to buy time later. Notice how the output has nothing to do with money – it’s about putting resources away now so that I don’t have to invest time working in the future to maintain my standard of living.

Here are four sources of passive income that I’m looking at for my own future, along with some suggestions on how you can get started.

Investments that pay dividends or distributions
The mere act of owning many investments can be considered a source of passive income. You merely hold the investment and regular dividends are paid out to you. Many people tend to focus on investments in terms of the increase in resale value, but many others quietly hold stocks and bonds that pay large dividends, lining their pockets with capital gains. Look for individual stocks and bonds or index funds that pay good dividends, then sit back and watch the money roll in.

How can I get started? Just start an account at an investing house (Sharebuilder‘s my pick for beginners who want to buy individual stocks; Vanguard‘s the place to go in my opinion for index funds) and set up an automatic deposit into the account. Let the dividends roll over until you need them for income, then just collect the dividends as cash. Passive income at its easiest, and I plan on digging into these options more in the future, both as investments for future things and as potential passive income if it’s necessary.

My plan Once our non-mortgage debt is gone (hopefully by the end of the year), I intend to start investing in Vanguard index funds in a taxable account (and perhaps a few individual stocks of companies I believe in) and holding that investment with a fairly long time. While our goal is to eventually use that money to buy a plot of country land and build a home, it’s also quite possible that I’ll just turn it into a passive income source by collecting dividends or bond distributions.

Writing a book
The normal procedure for writing a book involves getting a book deal and an advance check, writing the book and submitting the manuscript, then getting (possibly) another advance check, then sitting around while the royalty checks come in. It’s a nice way to get a passive income stream, but it requires a ton of upfront work and a significant time investment. However, once it is done, it not only earns money slowly over the long tail, but it also opens the doors to other active opportunities – an active-passive double header.

How can I get started? You can start by getting your toes into writing. Find venues where you can sell written pieces and make a bit of cash while also building up your resume. Then, when you have several pieces in print and a good idea, pitch a book to a small-to-medium sized publishing house or get an agent to shop one around for you. Get the deal, write the book, then the royalty checks come.

My plan I’m currently in the process of doing this. Once the work is done, I receive my final advance check, the book goes into print, and I receive royalties, no extra work really required. Granted, it won’t be large checks, but it’s a start. The real key (for me at least) is to write several books, enough so that the royalty checks are significant.

Developing a static website of some interest
If you don’t want to invest all the effort of writing a book, you can instead just develop a static website with whatever amount of written material you want. An individual site won’t earn you much, but considering you can set the whole thing up with just a few hours’ worth of work and walk away, even a few pennies a day can make the endeavor worthwhile over the long haul.

How can I get started? Think of a topic you know something about. Write down the useful information you know about the topic, and take pictures, too, if need be. Find a free hosting site online, like Google Pages, then put your materials there. Sign up for an ad service like Google Adsense and put a few ad blocks on the site. Submit the URL to a search engine or two, then sit back and wait. This is something you can do in an afternoon. Be aware that one single site won’t earn you much unless you have something seriously compelling – many people that do this make new sites and pages all the time to add to their repertoire. It’s passive in that they’ll earn income whether they add new sites or not – adding new sites merely increases the income potential.

My plan These are great ways to develop specific written ideas you might have and to share them with the world while earning some passive income. I have a few things I plan on documenting in just this fashion. In fact, if I ever get tired of actively writing The Simple Dollar, this is what it will functionally become – a static site on a server somewhere, slowly earning some income over the long tail for many years to come. I don’t think I’ll stop actively writing The Simple Dollar for a long time, though – I truly enjoy it.

Creating and selling creative products online
There are many sites where you can create or upload creative products and have them earn an income for you over time. Zazzle and Cafepress let you design t-shirts, coffee mugs, keychains and such to sell (they manufacture it and you get a cut as a designer), while Metacafe and Revver let you upload videos of your own creation and pay you if they’re viewed by others. The best part is once you’ve uploaded your design or your video, you can just walk away and the passive income will trickle in.

How can I get started? If making a video or designing a t-shirt sound compelling to you, give these sites a shot. They’re all pretty simple to use and can be lucrative if you create something that catches on. Just try uploading some things – even if you don’t make any money, you can still leave them up there and it might catch on later.

My plan I’ve been thinking of making a series of videos to run on Metacafe or Revver focusing on a number of topics (personal finance and cooking). My wife and I have already plotted out several ideas and have thought about creating them in our spare time, then posting them also to The Simple Dollar. We’ve also talked about designing t-shirts to put on Cafepress and/or Zazzle, but that’s a more nebulous idea. Both of these are in my “projects” folder – they’re things that would add to the portfolio of potential passive income streams if we invest the time to create them up front.

These are the four methods of passive income I’m strongly looking at. Do you have any interesting ideas for ways that people can create passive income?

The post Finding Passive Income Sources for the Future: Four Potential Avenues I’m Evaluating appeared first on The Simple Dollar.

Of course, any time that a bank offers to save you money, there is a way to use that offer to make money for yourself. First, apply for a credit card where you can get a strong credit limit. This first card is not as important as the others; don’t worry too much about a long-term APY. As soon as the card is opened, withdraw as much as you can as a cash withdrawal from the card and deposit that amount in a high-yield savings account. Then, obtain a second card, this one with a long-term introductory 0% APY, and transfer the balance from the first card onto the second one.

Let’s say that the first card allows you to get a $3,000 cash withdrawal and then you transfer that balance at 0% APR for a year onto the second card. If you put that money into HSBC Direct, earning 5.05% APY, you’ll earn $151.50 for spending an hour or so juggling cards. Plus, at the end of the year, you can get a cash advance from this second card, then transfer that entire balance to a third card, where it can sit for a year. If you can get another $3,000 advance, then transfer and wait another year, you’ve made a total of $462.15 for maybe two hours worth of work. If your credit is strong, you may be able to get even larger advances and thus profit more than that.

What you’re doing here is essentially using your own good credit rating to earn some money. The banks are making strong offers for your business because you show them that the credit they offer you is very low risk, so then you take advantage of those strong offers and earn some money for yourself in the process.

Of course, there are significant risks with such activities. The biggest one is that this tactic can bite you very hard if you’re not diligent with moving the money around. If you don’t transfer the balance immediately after a cash advance, or if you forget to pay back the amount you advanced (or forget to transfer it on) at the end of the introductory period, you can quickly lose what you gained in finance charges.

PFBlog describes a second major risk of such activities: it can seriously hurt your credit rating if you’re not careful, even if you’re on fully stable ground. In his example, he lost almost 100 points on his credit rating by opening too many accounts. Of course, he was doing this to the point that he was earning thousands a year from moving the cash around, but it is a risk to consider if you’re looking to possibly borrow money in the near-term future.

The key to making this work is the same as the key to making most personal finance work: keep careful records and be very diligent and careful. Once you begin failing to do this, you’re asking for trouble to sneak up on you.

The post Introductory Credit Card Offers As Profit: Risks and Rewards appeared first on The Simple Dollar.

The card offers a points program, 1 point for every dollar spent. Every 2,500 points, they turn into a $25 gift certificate at amazon.com. Alone, that’s not particularly great, but here’s the kicker: for every $1 you spend at amazon.com, you get 3 points instead. That makes the card have a 3% return at amazon.com.

For me personally, it nets about a 2% return in what amounts to cash, because I am a heavy user of amazon.com for all sorts of purchases. We use it almost exclusively for gift-giving purposes, for buying diapers in bulk (it is far easier and cheaper to have a deliveryman dump a monster box of diapers on the front step than having us do it), and for buying lots of bulk groceries and personal hygiene products through Amazon grocery. I would esitmate that roughly 60% of our “household spending” each month goes through amazon. Since “household spending” is by far the largest portion of our use of the card, we easily turn out a 2% return (approaching 3% near Christmastime). Of course, one of the big reasons for this is baby supplies; when our baby gets older, this may be re-evaluated.

How do I select a bonus program that’s right for me? The first thing to do is evaluate your credit card spending over the past few months and see where you use them and what you use them for. I made a list of spending ordered by what I buy and where I buy it.

The next step is to visit the websites of the top places that you use for purchases and see if they have good offers. Many of them are comparable to amazon’s offer. For a long time, my wife used a Target credit card because she lived very close to a Super Target and did virtually all of her shopping there, easily netting her a 2-3% return.

While you’re comparing these, you should also look at the offers from the major credit card companies to see if any offers match your spending profile. Good places to start include Chase, Bank of America, CitiBank, and CapitalOne. Whenever you find one that’s interesting, make sure to evaluate it carefully before signing up. If you’re not earning back at least 1.5%, there is probably an offer out there better for you. For example, My Money Blog recommends a Fidelity Investment Rewards card that generates 1.5% cash back into a Fidelity account (of course, you need a Fidelity investing account first…).

The key thing is to do some research and see whether or not your everyday card is really as much of a benefit as it can be. For me, switching to the Chase amazon.com card has netted a lot of “free” diapers.

The post What’s In My Wallet? And What Should Be In Yours? appeared first on The Simple Dollar.

1. Visit their blogs regularly. I keep a list of about twenty blogs I visit each day, and a similar number that I visit on a weekly basis. I also keep more than a hundred blogs in a site reader tool so that I can follow their posts as well, but I view them as more of an “extended family;” I only visit their site (and give them ad views) if their post really interests me.

2. Be aware of new blogs in the community, and give them a shot. I would describe this blog as a personal finance blog, so I keep a vigilant eye on community sites such as pfblogs and Carnival of Personal Finance. I’m regularly introduced to new sites on these and sometimes find neat posts from people I haven’t read in a while.

3. Comment on posts. If you see an interesting post, don’t hesitate to add a comment to that post. Not only are you starting a potentially interesting conversation, you’re saving a good blog from the dreaded “0 comments on every post? No one must read this awful site” syndrome.

4. If you read a post you really like there, take a look at their sponsors. If an article particularly impresses me, I’ll allow myself to be more open to looking at the information on the site from the sponsors. Sometimes you’ll discover something really useful; I discovered ING Direct this way and, after some additional research, wound up moving my savings account there.

5. Link to posts you really like there in your own blog. If you see a writing in a blog that you really like, don’t hesitate to link to it, particularly if you can contribute a good deal of additional thought to it. Not only are you coming up with a solid post for your own blog, you’re driving some attention to a neighbor who will appreciate it. The key, though, is quality – don’t just link to someone because you can, link because what they did was good and you can add something to it.

6. Add a permanent link to their blog on your own blog. If a blog consistently posts things you find valuable, add them to your site as a permanent link. But don’t add too many – a list of twenty links might be investigated, but a list of hundreds might not. Also, don’t sweat it if they don’t reciprocate with a permanent link; although it’s a nice touch, it might be the case that they’re trying to advertise blogs they like and they’re not as familiar with your blog as with others.

7. Be stingy. Don’t link to everything that a single blogger writes, just link to the posts that really make you think or inspire you. This way, your own readers won’t think you’re a sycophant, but that you are simply showing them the good stuff (which you are, of course). I used to read a blog quite regularly that turned into a “suck-up fest” for another blog… eventually, I just started reading the other blog and didn’t bother with the first.

You’ve patiently waited for the big question: how will these tips help you make money? The biggest reason is reciprocality: if people see you interacting with their blog on a regular basis, they will become familiar with you and want to visit your blog on a regular basis. For me, these reciprocal relationships sometimes develop into friendships as well, a second bonus. A third benefit is that you will likely build up a number of mutual links, pushing your rankings in Google higher in a legitimate fashion. A fourth benefit is that random people that you don’t know will have many more opportunities to stumble across your blog.

In other words, build the community in a healthy, organic fashion and your blog will be built up in a healthy, organic fashion. Plus, you might just make some new friends in the process.

Take the initiative and visit some blogs in your community today!

The post Seven Ways To Help Your Blogging Friends appeared first on The Simple Dollar.