Now I just have to think of a way to employ people normally and trick them in to thinking that the income they're making is "passive"...
Make a rule how much money you give them each month... and then another rule saying that you will only give them 50% of that amount in that month, and 10% of that amount in the following five months. Explain that this way, even if they take a vacation one month, they will still get "passive income" from the previous months.
Or to make it easier, use normal employment rules, just rename vacation as "days of passive income". And as a bonus, if you don't spend them all this year, you can have more the next year. Just think how cool it will be to collect your "days of passive income" from 50 years of work!
If a job is worth much more that the minimum wage, you could simply give them 1/2 of the salary, and let them have 1/2 of the year as a vacation... just call it "days of passive income" again. Sure, the salary is smaller that the competition would offer them, but working for you they get the passive income!
Now seriously...
The idea of "passive income" is so attractive, because it comes with a sense of freedom. The passive income is usually not the only part of the package; there is typically more involved. Such as: you decide the speed of your work; you can take a free day anytime you want; you don't have a boss micromanaging you or inflexible company rules.
Even without the passive income, I would love to have a work where I could just take a day off, anytime I need, any number of days in the year, just for the cost of losing 1/20 of my monthly income (or reasonably more, to cover company the fixed costs of employing me). A job where I can negotiate about getting 10 more days of vacation in a year, without sounding like an alien from a different planet (possibly from a planet where people have life, dreams, and projects, instead of being fully devoted corporate drones). Things like this are typically included in the package labeled "passive income" and they are a significant part of what makes the package attractive.
Just provide the other things typically associated with passive income, and your employees will love you. Of course if you add to the mix some rule that says "I will give you part of the money now, and part later" and call it "passive income", this will make the deal even more sweet.
A job where I can negotiate about getting 10 more days of vacation in a year, without sounding like an alien from a different planet (possibly from a planet where people have life, dreams, and projects, instead of being fully devoted corporate drones).
Or even from a different continent of the same planet.
I read one too many breathless blog posts on the virtues of passive income and decided to write a rebuttal. Much of this should be obvious to folks with a solid economics background; in fact, please correct me if I got anything wrong.
People seem to think in an odd way about passive income. One Helium.com author writes
Sub-minimum wages really are exciting, aren't they? (At the end of the story, the guy has won the proverbial Helium.com lottery, and ends up making $1,246 submitting an article on how he hacked a credit card company's balance transfer offer to reddit. If I recall correctly, this inspired a spate of Helium.com writers spamming reddit with their posts. Probably why I ended up reading his article in the first place.)
Now I just have to think of a way to employ people normally and trick them in to thinking that the income they're making is "passive"...
But even smart people are in to passive income. Here's Brian Armstrong, who looks pretty sharp: economics degree, Airbnb software engineer, and now Y Combinator startup founder. His blog is largely about passive income, and he even wrote a book about it a few years ago. So being an expert like this, we'd expect him to be making lots, right?
So first, it looks like selling people the dream of passive income is a very profitable business to be in, and actually having passive income is not a requirement for entering it.
But is that even true? Brian reports that his high December earnings are due to book promotional efforts. At some point, he decided to make his book available free. Would he have done that if he was still collecting substantial revenue from it? Doesn't seem that likely.
Does your blog really count as a source of "passive" income if people gradually stop visiting when you stop making new posts?
And second, yeah, maybe if you're a good software engineer with a good idea you can build a passive income business.
In fact, working for "active" income vs building a "passive income" business is a bit of a false dichotomy. You can convert the cash you make through a regular job in to "passive income" by investing it and collecting interest. And you can convert your "passive income" business in to regular old chunk of cash by selling it.
If you're interested in making more money in your off hours, starting a business is one option. Doing freelance work is another. Starting a business is higher variance--you could make it big, or you could waste a lot of time and effort. You'll most likely have to do something no one else is doing, or at least do it better than everyone else is doing it, so any kind of highly specific guide or formula for making passive income is probably out. (Ask yourself why the person selling you the guide doesn't just hire people to complete all the steps in the guide and collect the profits for themselves.)
Interestingly, however, it seems as though internet businesses may be underpriced as an investment class. This guy writes:
If we assume the market price of a completely hands-off internet business is 3 years' profits, then you'll have doubled your initial investment in 3 years, since you've still got the business to sell afterwards. Abusing the rule of 72, I estimate that this is equivalent to getting a 24% annual return on your investment, which is obviously absurdly high. (And this doesn't even take in to account the fact that you could reinvest your internet business' earnings.)
Of course, there are reasons to be wary about getting in to internet businesses as well. Ease of buying and selling isn't the greatest and you might get scammed. But probably the biggest thing is the Internet's short attention span. Google changes its ranking algorithm periodically, and beyond that, it's easy to be eclipsed by something newer and better (see MySpace). So if I were wealthier, I'd want to have a portion of my net worth in internet businesses, but not all of it.
BTW, http://www.rolfnelson.com/ is good for rational analysis of stuff related to entrepreneurship.