Let’s face it, a bunch of us are lazy people, lawyers or otherwise. If given the chance to make money by just sitting around and doing nothing, most people would jump at the chance. Earning income by doing nothing is possible. No, it’s not done by betting daily on lotto, not by selling anything illegal, not by scamming other people. It’s done by earning passive income.
What is passive income
Income can be classified into active or passive income. Active income is composed of the salary or other remuneration (including allowances and bonuses) received from actively working or engaging in business. If you physically or mentally (for professional services) exerted efforts to make money, that’s active income, my friend.
On the other hand, passive income as the term suggests, is derived passively and without any active effort on your part.
Passive income is desirable for many reasons. For us millenials, a relevant reason is that passive income allows you to exponentially increase your income level beyond your current salary /profit margin. Time that can be devoted to work or business is only 24 hours a day. With passive income, you have an extra income stream beyond your 9-5 job, just by doing nothing.
How I made money doing nothing in law school
Prior to law school, I was employed full-time. I tried to negotiate a part-time arrangement with my employer so that I can continue earning even while studying, but the employer wouldn’t budge. So I went to law school full time.
It was an adjustment for me to go from having a lucrative job to earning no active income. I was uncomfortable with that. I was used to being independent and bought my own clothes, food and vacations. I financed my own discretionary spending. How did I get through this?
I made money by just sitting around and doing nothing of course. I earned passive income. While attending my law classes, reading the assigned cases, researching in the library, going out with friends, I was making money. The sources of my passive income are detailed below.
Unrealized passive income
Passive income may be realized or unrealized. Realized income is one that has been cashed in. Unrealized income is profit made that has not been converted to cash yet. I was fortunate because during law school I already accumulated the following assets, which earn passive income:
Shares of stock
Shares in a mutual fund
I earned unrealized passive income from the capital appreciation of my shares of stocks. Simply put, the value of my shares increased. During law school, the local stock index gained points aggressively, to a point that the value of my stocks gave me a 120% net profit in a span of months. This was already a good profit margin so there were times I sold some shares.
Realized passive income
Once I sold some shares, I made a profit. This represents realized income. Once the profit is converted to cash, it is subject to taxes and other fees. Other than stock sales, I earned money from cash dividends given by the companies I partially owned. I also received stock dividends.
Since law school was a time of market recovery, my mutual fund shares likewise appreciated to a point that I sold them. The profits I made from this, I placed in shares of stock.
My last source of passive income was from the minimal interest payments from my cash deposits.
As you can see, passive income is great! Next time you contemplate on betting heavily on lotto or other games, please think about the passive income you would forego. Betting on lotto gives you a one in a million chance to win. But earning passive income is sure money that you can make by just sitting around.
Once your assets earn so much passive income that such passive income is enough to fully fund your expenses, then you can eventually quit working altogether!
How do you earn your passive income?
20 something lawyer
*Notably absent from my assets are government securities such as retail treasury bills and bonds and corporate bonds. At that time, these securities weren’t yielding that much income. The return was just at a measly 2-3 percent per annum. It didn’t make sense to give up liquidity for such a paltry return.