June was an exciting month over here at the Crispy Cabbage blog. The good-looking folks at Rockstar Finance reposted two of my articles and our stats shot through the roof! That kind of exposure couldn’t have come at a better time. This blog was approved for WordPress’ WordAds the month before…
Ring the register, baby!
Yep. At this pace, this time next year (give or take a few decades), I’ll have a check in the mail for 100 bucks. Pure profit! For doing virtually nothing! See for yourself…
Well, it’s not exactly “pure profit”. I’ve already spent twice my future revenue on hosting and domain fees, and will have spent an eternity in front of this keyboard by then. Plus, I’ll probably be dead in 2088. But, details.
Nevertheless, if I make it there, that $100 will feel like $1,000. Nay! It’ll feel like 10 Grand! Because it will feel like it was manufactured out of thin air. Because it will have come from my creative energy doing something I genuinely find fun. Because it will have come from something I own. Because it will have come from all that rolled into one… it will have come from something called recurring income.
Recurring Income may, in fact, be the beautiful baby of all the other kinds of incomes out there and I can’t take my eyes off the 89-cents she just gave me. Her parents, Passive Income, Earned Income, and Portfolio Income each passed on important traits to create what may be the ultimate income source.
Here’s how she was born…
Passive Income: The Rich And Lazy Father
It’s easy to see. A lot of the appeal of Recurring Income is that she lets you make money while you sleep. That’s the legacy passed on by Passive Income.
In fact, most people confuse Recurring Income with Passive Income. Maybe you do, too. That doesn’t make sense. Recurring Income’s a girl, silly.
She’s different in other ways too. For example, unlike her rich and somewhat lazy father, Recurring Income doesn’t need a ton of up-front capital to make you meaningful money. And Passive Income is not as exciting.
You see, in my mind, true passive income only comes from stuff like stock dividends or loan interest. Stuff that requires little to no effort to set up. But that also means it takes a lot of money to build up a passive income portfolio that spits out good cash flow. $100,000 in dividend stocks yielding 3% makes only $250 per month, by my math.
Recurring income, on the other hand, comes from stuff like book royalties, product licenses, subscriptions, blog ad revenue and online black metal vegan cooking shows… you know, the creation of something new in the world, something with inspiration behind it.
Yeah, some of this may require a little bit of capital to set up. But, mostly, it takes creativity, a good chunk of up-front effort, and a little bit of upkeep.
Nowadays, a business with recurring income can be bootstrapped with the spare change you find between the cushions of your couch, the tiny spark of an idea you find between your ear-holes, an online browser, and a bit of elbow grease. And unlike passive income, which is strapped by how much money you start out with, the sky’s the limit for the amount of recurring income you can earn.
Earned Income: The Overworked And Underpaid Mother
I have a lot of respect for Earned Income. She puts in the time and effort every day in the grinder to earn an all-too-tiny bi-weekly paycheck. She’s adding real value to the world while Passive Income just sits around on the couch all day throwing money at stuff.
I, myself, earn a salary. It’s cool. It allows me to buy stuff: Socks. A roof over my head. The occasional trip to Potbelly. Pretty much almost anything I’ve bought, to date, has involved a run-of-the-mill paycheck from some kind of corporation answering to some kind of boss.
The ability to be out there in the world every day adding value in some small way is really cool, too. It provides purpose. But let’s face it, punching a clock stinks. And, once you stop punching a clock at a normal job, the paychecks stop coming. Boo!
Recurring Income lets you add that value you so desperately want to add to the world, that unique spice only you can provide. She’s got a little Earned Income in her. But recurring income can be a huge improvement over the trade-your-time-for-money-answer-to-the-man-bi-weekly paycheck of what most of us know as earned income.
With recurring income, your effort is amplified, because you own it and you decide exactly where it goes. Instead of enriching others for a small sliver of their profit, your labor bears fruit over and over again for you, long after you’ve put in the really hard work… While you’re napping, even!
And Recurring income allows you to move on to more important things while previous projects keep paying out. Tend to your past projects every now and then, and they can keep the cash flowing for virtually forever.
Portfolio Income: A Gambling Man
Oh man, I love Portfolio Income. He’s such a fun guy.
He’s buying up all kinds of stuff in the stock market. It doesn’t even matter if they throw off dividends. Unlike Passive Income, he doesn’t care about cash flow. Portfolio Income really only cares about asset appreciation. He’s buying up real estate, gold and silver, rare coins and Pokémon card for the same reason. He says things like, “Buy low! Sell high!”
Such a fun guy…
Okay, let me be back-pedal a little bit before the Bogleheads crucify me for equating things like stock index investing with reckless gambling.
Let me be clear, Portfolio income is an extremely important part of a well-balanced retirement. People absolutely need to buy up appreciating assets to cash in for living down the road. You absolutely need to have a stake in the entire stock market (the entirety of human ingenuity and productivity), even if it’s just a small stake. I’m a huge fan of portfolio income like that.
But, at its heart, all portfolio income is a gamble. Even though we expect the stock market to appreciate at a roughly 7% clip over the long-term based on history, that’s not guaranteed. It’s far from guaranteed in the short-term. And once your money goes into any asset, unless you own the business or you’re on the board-of-directors or you think you look good in blaze orange, you have no control over how that asset grows in value.
With the right investments, you expect people to pay more for your stake in the future than you did in the past. But, at the end of the day, you’re really just hoping.
I’m not sure if I made things better with the Bogleheads or not. And where on Earth am I going with this?
What does portfolio income have to do with recurring income?
Well, building a source of recurring income for yourself can turn into a little business. That little business can grow into an asset… with underlying value. It could even turn into an asset someone else might want to buy someday for their own portfolio.
Remember how I just said that “unless you own the business”… you have no control over portfolio income? Recurring income gives you that control, because regular positive cash flow is one of the most, if not the most important part of any business’ balance sheet. All you have to do is convince a fickle consumer to buy your product over and over again. Easy.
Grow your recurring income and you grow your business. Grow your business and grow your portfolio. It’s that simple.
My little blog may not be a business. It’s not really earning any kind of income. It’s actually seriously in the red, right now. But that 89 cents of gross revenue from WordAds, that tiny spark of a recurring income stream, has got me very excited about possibilities for the future.
I absolutely love Recurring Income. The other Incomes are cool too, but they each have their limitations. With Passive Income, it’s the lack of purpose and need for lots of capital. With Earned Income, it’s the fact that cash flow can be abruptly cut off. With Portfolio Income, it’s the lack of control over the wild swings of the market.
Recurring Income, on the other hand, seems to be the best parts of the other three, and I’m going to give her a lot more of my attention from now on when it comes to my money.
What are your thoughts? I always love to check out the comments below.
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