I hear the term ‘passive income’ thrown around a lot. But what does it really mean? Is anything that you earn outside your day job considered passive income? Let’s look at some popular things that are associated with the term.

Dividend Income From Stocks
First, one must come up with money to buy a share of a dividend-yielding stock. That probably took some work. But what’s so special about a dividend? There are two components of return from stocks – share appreciation and dividends. All other things held equal, when a stock gives off a dividend, the share price drops commensurately. For example, if the share price was $100 and it gave off a $1 dividend, the share price would then be $99. So it’s not like the $1 came out of thin air.

If you had 100 shares of a $1 stock, you could simply sell $1 and get $1 of cash and $99 of stock as well. In fact, sometime dividends are simply paid in the form of more shares of stock. The way I see it, if you think dividends are passive income, then you should treat any increase in share price as passive income as well. Coupon payments from bonds and interest from savings accounts would be in the same group.

I personally prefer to simply call all these things investment income and keep it separate, as learning about investments is more of a requirement nowadays, as opposed to an optional entrepreneurial venture like the other activities below.

Creative Works – Songs, Books, Patents
Let’s say you compose a song, or write a book. Every time someone plays your song, or buys your book, you will get a small fee. But what if you spent 1,000 hours writing that book, and you only earn a $100 each year from royalties? Is that really passive? Sounds like a lot of research and hard work to me. On the other hand, the Beatles will be making millions for their great-great-great grandchildren. When does it cross over to becoming passive?

Take blogging for example. You spend hours writing, reading, commenting, dealing with spam. Divide your advertising revenue by the hours spent, and if you’re really lucky, you’ll be above minimum wage. And then there still ain’t anything passive about it!

Real Estate Rental Property, Vending Machines, Car Washes
Another group with similar characteristics… You put up a relatively large sum of money upfront to pay for the rental property, vending machines, or car wash property and equipment, and after that you make money from rent, selling soda/snacks, and water/soap, respectively. But there is still work to be done. If you don’t manage your properties, restock your supplies, or maintain your equipment, things start falling apart fast. Even if you do all these things, there will always be the occasional breakdown or emergency to give you headaches.

My Alternative Definition For Passive Income
Now, I don’t doubt that many people make a ton of money with things like rental properties and writing books, with a relatively small amount of ongoing work. I’m still definitely interested in pursuing such activities! It should be obvious that I love making extra money on the side as much as anybody. But I don’t call anything I do passive income. I can’t really think of anything truly passive, besides maybe winning the lottery. So I suppose “passive” really just means “less work than other stuff”.

Accordingly, here’s my two requirements for me to consider labeling an activity as “passive income”:

If you only satisfy the top one, then it’s just a really well-paying job. If only satisfy the bottom one, you wouldn’t be using your time efficiently, which wouldn’t make it very passive at all. Would you agree?

You’ve heard of YouTube, but what about Revver? It’s a video-sharing site that also shares advertising revenue with either people who upload their own videos, or simply share existing ones. The creator gets 40%, Revver gets 40%, and the sharer gets 20%. I just read in USA Today that they have now paid out $1 million out to users. These guys have made over $50,000 alone for this Diet Coke/Mentos video:

I uploaded my super-amateur Roth vs. Traditional IRA video for kicks, but it hasn’t been approved yet. I’m sure making serious money this way would be very difficult, but if you had the creativity or happened to get lucky taping something unique, this might be both fun and profitable. There are a bunch of other sites like MetaCafe that also profit-share, but they seem to be much more selective.

In the creative department: I’ve been wasting time watching a lot of HappySlip videos, which are essentially a one-woman show – she is actor (with multiple roles), writer, producer, and director. Just her, a cam, and a Mac. Highly amusing!

In the lucky department: This blogger apparently got a 300-page iPhone bill, taped it, and has made $5,000 so far.

Recently, I got placed in charge of trying to obtain an LCD projector for a family event. Has anyone else out there had to do this? What kind of prices did you get? I found that renting an LCD projector directly from a higher-end hotel costs at least $500. An hour. Then I searched for local or online stores, and found the cost was around $200-$350 for one day. The high end was including delivery and pickup, but neither place actually would help me set things up. Finally, we worked something out with a friend of a friend.

Is it me, or is the highest ratio of renting/owning of any product? I can rent a car for $50 a day, but not an LCD projector?!

This got me thinking – wouldn’t this be a great business? You can buy a solid 3,000 lumen DLP projector for about $1,000. Basic ones start at $500. You don’t need a HD or home theater version, most people are just doing PowerPoint presentations or picture slideshows. You can also pick up a screen and stand (many places just let you use the screen they have) for another couple hundred dollars. After some quick brainstorming, here’s a rough plan of attack:

1) Set it up. Pick a name “AnyTown Speedy Projector Rental”, and put up a professional-looking website with your phone number and nice description of your equipment. Help out some friends and add some testimonials and references. Definitely put up a “Best Price Guarantee”.

If you need a business license for your area, grab one of those for $50 or so. Get a merchant account so you can accept credit cards.

2) Do cheap guerrilla marketing. List your service on Craigslist. Tell everyone you know. Put a big sign on your car. Maybe start a highly geo-targeted Google Adwords search engine advertising campaign. Contact some wedding coordinators and offer a referral fee or reciprocal marketing agreement.

3) Price aggressively and offer extras. On most days, you could simply require them to pick up the day before the event, and drop back off at your house the day after. Take their credit card information and make them sign a damage waiver stating that they will be liable for replacement. Charge… say… $100 per day (ignore the pick-up and drop-off days). In 10-11 rentals, you’ve broken even. After that, it’s all profit!

(With the “Best Price Guarantee” you could simply ask them their lowest quote, offer 10-20% less, and charge even more than $100.)

My idea is that on weekends (when most people need it), you can also offer “professional setup” by bringing your own laptop and speaker system, and running the show yourself for an additional price. Lots of times the projector part only last for less than an hour. Maybe charge $250 for the delivery, rental, and the first 2 hours of work. This is cheaper than any other person I’ve talked to. As long as you’re pretty good with computers, you could be a one-man show.

For someone looking for ways to earn some extra cash on the side, I think this could be very viable. People are already doing it on Craigslist. You could even use it at home to watch movies when it’s not rented out. Poke holes in my idea in the comments! 😀 Got your own instant biz ideas? Share those too!

Sometimes I am truly amazed by the internet. I can get an idea on a Friday night while talking with friends, go home, buy a domain name, create a website, upload it to a server, and have it live to the entire world before morning. I don’t need to buy any licenses, line up manufacturers, pick up raw materials, or hire any employees. Sure, I may have to wait a day for some DNS servers to resolve, and I will spend many more hours working on it later, but overall the instant gratification is great.

I’ve alluded in that past that part of my side business involves making websites for local clients, as well as miscellaneous websites on a variety of (mostly non-financial) topics that interest me. I get paid for the design work, as well and hosting and maintenance. Some of my own websites are profitable, and some are complete flops. But it’s fun and if you already have hosting set up for another website already, the only additional costs are my time and $9 at Godaddy (currently only $7 with coupon code ‘hash3’). To be perfectly honest, I’m not terribly good at graphic design or even web design.

Here’s the thing: I’m sure there’s some topic out there that you know about much more than the average person – venison recipes? making your own furniture? old Toyota truck? homeschooling your kids? That knowledge and passion are the most important things you need start your own website, not HTML skills.

Sorry for the rambling; I would write more, but the sun is going to rise soon and I can’t think straight anymore…

Although many of us have thought about starting a small business, significantly less actually take the plunge. So when I read on Dennis’ Young Money Blog back in July that he had opened up his own custom Greek Apparel store, I was intrigued and have been following his adventures on and off since. Fast forward to today, and he’s attending trade shows and just spent over $20,000 on new equipment.

I wanted to learn more about his story, so I asked him for an interview. Here it is, condensed from an instant messenger chat we had:

Can you please give me a quick mini-bio of yourself?

I’m a 23-year old student at the University of Florida studying Marketing and Political Science.

So, when did you feel like you first started getting the entrepreneurial bug?

Actually, I was reading your blog a lot, as well as NevBlog.com. That got me started. I didn’t find any blogs that talked about students who didn’t have an income, so I figured I should start something. But along the way… my blog became an entrepreneurial blog too!

So no newspaper route when you were five or anything like that? 😉

Nope, my family was poor, so that stuff wasn’t even on our minds.

So how did you come up with the Greek store idea?

I’m in an Asian American fraternity, and I recognized that this portion of the Greek community, along with Hispanic/Latino and multicultural organizations, were growing. When you do a general search for “Greek store”, “Greek apparel”, etc. on Google, most of the sites focused on the National Interfraternity Conference (white fraternities) and Panhellenic Conference (white sororities). So I wanted to target a niche.

Did you have any experience in the clothing area beforehand?
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Here’s something to talk about while you’re out and about tonight – What would be a clever and new T-shirt idea?

CafePress lets people sell their own art and design work without any of the hassle. They handle the printing, shipping, webhosting, payment processing, customer service, and even returns.

It’s free to sign up and start your own store. Then all you have to do is:

1. Make your own unique design or slogan.
2. Upload it as a digital image.
3. Pick the products you want them to be on.
4. Set your own price.
5. Publicize your store and sell them!

They’ve got all kind of stuff – every size and style of shirt, hats, dog clothes, baby clothes, buttons, boxers, thongs, frames, mugs, pillows, bags, coasters, bumper stickers, clocks, steins…

For fun, I whipped up the MyMoneyBlog Gear store in about an hour. Here are some samples:

It definitely helps to be familiar with an image-editing program, but you can still make basic designs easily using free software like GIMP or PhotoPlus. Here are some more image creation tips. Remember, using copyrighted materials is a no-no.

The main drawback to all this is that the products can be a little pricey and your profit margin can be pretty slim. For example, a basic T-shirt has a base price of $8.99, and that includes zero profit to the seller. To get $1 profit, you’d have to sell it at $9.99. I basically just added a $2 profit margin to everything in my store. So if you buy something (ha!), I get two bucks.

If there is enough interest, perhaps I could run a T-shirt designing contest? Off the top of my head, I’m thinking of two categories: Financially-related and Anything Goes. So get those creative juices flowing! Start your own business in 1 hour with nothing but an idea 🙂

Added: I found out if you sign up as a seller and use my shop ID as your referral, I will earn 5% of the base price of every sale you make for a year at no cost to you. My shop ID is “mymoneyblog”. Also, another option is Zazzle.

There’s always a lot of interest for home-based businesses with flexible hours. (Why wouldn’t there be?) Here’s one unique example that I drove past today on a busy local street:

In case you can’t make out the sign, it says “Valentine’s Baskets – Sale”. Sorry for the blurriness, it was taken with a cell phone. I circled around for a second look, but I didn’t stop so I don’t know how much they were. The gift baskets seemed nice, with teddy bears and balloons and such. I wonder if they were from last year’s After-Valentine’s clearance sales, or if they were handmade. There’s a business idea – take advantage of after-Christmas/ Thanksgiving/Easter/Valentine’s day sales, bunch up the cheap knickknacks, and make them into gift baskets for next year. I would probably look into a better venue than selling from your driveway (eBay? local craft markets?).

Although I am skeptical that they will be very successful, I might stop by tomorrow to chat with the entrepreneurial homeowners to see what their motivation was (and maybe suggest they make a more legible sign).

It’s failure time! I’ve talked a little bit about an online business idea that my wife and I had about a year ago. I’ve even showed a few prototypes. But we’ve finally laid all hope or desire to pursue this business to rest. Here’s the story:

The Idea Forms
It all began when we got a dog. We discovered that not only do people love their pets, but they are willing to spend a lot of their disposable income on them. Dog bakeries. Dog clothes (the bane of my existence!). Dog birthday parties. After buying a few $4 squeaky toys, and having our dog completely obliterate them in 46.6 seconds, we started thinking about making our own dog toys. You can actually buy “squeakers” for about 20 cents each on eBay. Add fabric and stuffing, and you’ve got yourself a cheap squeaky toy! But it still lasted less than a day.

My wife is great at crafts and sewing things. After several prototypes and using our dog and our friend’s dogs as beta-testers, we finally came up with a very durable double-layered squeaky toy. The outer fabric is soft and fleecy, but the inner is super-tough. It lasted almost indefinitely without puncture for most dogs that tried it. To add a personal touch we even have an embroidery machine to add the dog’s name to each toy. Here’s a late prototype, complete with label and packaging:

The Problems – Profit? What Profit?
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