Baby Boomers: How to Establish Passive Income Streams

Differentiating between active and passive income

As a baby boomer, it is important to establish and maintain a guaranteed source of income. This can be either active or passive income. Perhaps you are currently employed and have regular income, but you are approaching retirement quickly. Because or your age, you know that you may be let go at any time. In this time of global economic recession, your job could be terminated suddenly. You may even lose the pension in which you have been investing, over the years. While you are actively employed, it is a good idea to begin to establish several, passive income streams, so that you will continue to have other valid sources of income, just in case.

"But what is a passive income stream?" you might ask, "And how does one establish a passive income stream?" 

To some baby boomers, the expression passive income stream may not be familiar. It is important to differentiate between the two kinds of income.

Active income: With active income, you must be actively employed or doing something on a regular basis, in order to make money. You are working. Regular employment generates an active income stream that flows to you and into your bank account.

Passive income: With passive income, you take initial action with regard to establishing an ongoing income stream. Depending upon what you have set up, once the income stream has been established, you may not need to do anything else in order to maintain the passive income stream that flows to you and into your bank account. As a baby boomer, establishing a number of passive income streams, at this time in your life, can prove to be an excellent idea. This has the advantage of allowing you to generate extra income, above and beyond the regular pay check that you earn from your active employment. You can have any number of passive income streams. 

Many baby boomers have both active and passive incomes, but may not realize it.

Consider the following examples, with regard to possible sources of income.

Regular employment: You go to work as a parking lot attendant and earn a regular income that you receive, in the form of a monthly pay check. This money is active income. In order to keep that income stream flowing, you must continue to work. A problem may arise, if you are no longer able to work. Your source of active income may end, unless you have employment insurance, which you can collect in lieu of earned income. You may only be able to collect a percentage of that income and that will end at some point in time.

Bank interest: You have been frugal and saved x number of dollars, over the years. Your bank pays interest on that money as a monthly, direct deposit, into your saving account. This is a passive income stream. As long as that money remains on your bank account and the interest level does not change, you will continue to receive the passive income.

Disability pension: You were injured in a work accident, a number of years ago. You receive a permanent, partial-disability pension. This is passive income, although it is not something that you planned to receive or anticipated receiving. You do not have to do anything in order to receive it.

Look at some other examples with regard to potential sources of passive income.

Photography: You have reproduced one of your old photographs and placed copies of it in a local bookstore. The copies generate regular sales. You receive part of the money from the sales and a percentage of it goes to the bookstore. The money that you receive from the sales is passive income.

Post cards: You have invested money and signed an agreement with a printing company, stating that they will create postcards from your photographs of local scenery. You have arranged to have the postcards sold in variety stores. Your ongoing income from these postcards, above and beyond your cost, is passive income.

Product sales: You are a distributor for a company. You have entered into an agreement with another company that has agreed to continue to purchase products you introduced to them. These will be automatically re-ordered and delivered. This continuity order serves as a source of passive income for you.

Royalties: You have written a book and published it. You have made arrangements with a designated agent to market the book for you. The sale of your book will continue to generate money for x number of years. Part of the income goes to the assigned agent and the rest is yours, in the form of passive income.

Rental property: You purchased a new sailboat. It is rented out to others at a local marina, by a designated person, who maintains the sailboat for you. Above and beyond the cost of paying him for his services and the maintenance of your sailboat, you receive a monthly check. This is your passive income.

E-books: You have compiled information on wild flowers and have published it in the form of an e-book. Copies are sold regularly on the Internet. As the sales continue, the income generated becomes a passive income stream for you.

Freelance writing: You have written articles that are published on the Internet. They continue to be sold and re-sold by the owner of the website, on which they are placed. You receive regular income from these sales. That is passive income that will continue to come to you for many years.

Music: A songwriter, you have written an original piece of music, which has been recorded and is being used as a theme song for a movie. You receive royalty payments from this music, for the rest of your life. This is a source of passive income for you now and possibly for your children or grandchildren, in the future.

CDs, videos and slide shows: You have created CD's, videos and slide shows. They are published on the Internet. As they are distributed and used by various publishers, they become sources of passive income for you.

Note that there are always a number of things you need to be aware of, when you are attempting to establish some passive income streams.

Cost: There is initial cost involved in setting up a potential, passive income stream. There may be ongoing costs. Your passive income stream should be calculated in such a way, that you are always generating or earning income, not losing dollars. All initial, current and ongoing expenses must be calculated into the profit-loss equation. Sometimes, it is a good idea to work out the potential long-term figures, with a bookkeeper or an accountant.

Risk: There is invariably risk involved, no matter what kind of project you undertake with regard to passive income. For example, when you purchase something used by others, it can be misused or abused and you may suffer a loss, unless you have obtained appropriate insurance coverage.

Copyright protection: For any written or published material, you need copyright protection. Ensuring the integrity of any kind of a publisher is always important. Always find out who you are dealing with and what their expectations are, before signing any contracts.

Integrity: Taking the time to make a valid inquiry into the integrity of those with whom you become involved in any kind of transaction, is time well spent, when you plan on setting up a passive income stream. Be aware that your passive income stream can disappear into the pockets of someone else, quickly.

Legal costs: When you are setting up a passive income stream, consider initial or ongoing legal costs. Legal costs can be incurred as the direct result of problems with a passive income stream. Do your research ahead of time and avoid problems later.

Continuity orders: Continuity orders offer distributors a possible source of passive income, but at the same time, distributors must be certain that they are not the ones who have to pay for the orders that are automatically delivered to someone else, on a regular basis. Your success or failure may depend upon the scruples of the company or organization that you are dealing with.

In conclusion, as a baby boomer, you can probably find multiple sources of passive income, if you look at what you and other baby boomers are doing. There are many ways that you can take active employment of some kind and generate passive income from it. You need to figure out a positive, constructive way to turn the active income stream into a future, passive income stream.

As you generate passive income, remember to re-invest that income in other passive income streams. Always re-invest wisely. You will be glad that you did. Enjoy your new found prosperity from your active and passive income streams and encourage other baby boomers to do the same.