Passive income. It’s the dream of many entrepreneurs and freelancers, who can’t stand working for someone else for the rest of their lives and need a way to make money without expending much in the way of effort. It is just what it sounds like: money you get from something that requires little to no work. Thousands of blog posts will tell you that making passive income is easy, you just need to find a method that doesn’t require too much work and voila!
But it’s not that simple. In this blog post, we are going to break down everything you need to know about passive income. This is not the pretty fairy tale version most bloggers try to sell you, but the raw truth.
What exactly is passive income?
Simply put, passive income is money you get from something that requires very little to no work. This is different from regular income in that regular income requires you to actively work for it, whereas passive income is money earned while you sleep.
Note that the actual amount of “very little” required varies from case to case. Some methods of generating passive income require almost no work at all, whereas others require quite a bit. There is no one-size-fits-all answer to the question of how much work you need to put in to earn your desired amount of money.
As we have just seen, passive income is not only different from regular income in the sense that it’s money you earn without having to actively work for it. It is also different because it is money that you do not have to reinvest. Once you’ve created the initial source of passive income, you’ve done the hard part. You don’t have to actively work to keep the money rolling in. You just have to maintain what you have, and the money will keep coming.
How is passive income different from other income?
As we’ve seen, passive income is money you get from something that requires very little to no work. But how is it different from other income? Well, let’s take a look at the two most common forms of income: salary and business.
Salary income is money that you get for work you have been hired to do. This could be anything from a regular office job, to freelance work, to side hustles like driving for Uber or delivering food with Deliveroo.
Passive income is money you make from putting money into assets that generate income for you. This could be stocks, real estate, peer-to-peer lending or writing a song, book and earning royalty etc.
There are some similarities between salary and passive income. The primary one is that both forms of income are dependable. Sure, your salary may be lower one month if you work for a terrible company, and you may have to take a month off to recover from a serious illness. However, these interruptions are relatively rare, and they don’t happen very often.
Income from your business or side hustle is money you earn by working for your own business or freelance work. Your business or Freelancing is often treated as Passive income but its not! Business income can vary month to month and the main difference is if you stop working for a while your income stream slowly dries up. This is true of blogging, affiliate marketing etc.
Why is it so important?
When it comes to your financial security, there are two types of income that you need to be able to rely on: your current income, and your passive income. Your current income is the amount of money that you have coming in right now. This includes things like your salary, business or any other money that you get from actively working. Your passive income is money you earn from sources that don’t require you to be actively working for them like rent or royalties.
The fact that you don’t have to actively work to earn passive income is the most important part of it. People often rely on one single source of income, usually their salary. This is not enough. When your primary source of income stops coming in, what happens? You go broke. But if you have passive income coming in, you can survive any interruption to your primary source of income.
What are the passive income sources available to me?
There are four main types of passive income: real estate, dividend stocks, royalties, and sharing economy.
- Real estate is one of the most popular forms of passive income. You can earn rental income from properties that you own and don’t have to actively manage. This can be a great way to build up wealth over time.
- Dividend stocks are another popular form of passive income. With this type of investment, you own shares of a company and receive regular dividend payments. This can be a great way to earn some extra income without having to do any work.
- Royalties are another important type. This is when you receive payments for the use of your intellectual property, such as a book, song, or patent.
- And finally, the sharing economy is a newer form of passive income. With this, you can earn money by providing services or renting out assets, such as a room in your home or a car.
As you can see, there are many different types of passive income available to you. Which one you choose will depend on your personal circumstances and goals. But with a little research, you can find the perfect passive income stream for you!
