Passive income is money you make without putting in time or effort to maintain the flow of cash.
Generally, you have to put in time or money to set up the source of your passive income, but once the setup phase is over, the money rolls in without extra effort on your part. Another common name for passive income is residual income.
Examples of passive income include:
- Rent paid to you for a home or commercial building you own
- Royalties for a book you wrote that the publisher sends to you
- Dividends earned from stock you hold
- Money collected from vending machines you own
Making Money While You Sleep
One thing you’ll hear a lot when people discuss passive income is the idea of making money while you sleep. The basic concept here is that the money rolls in while you’re doing something else, and something you establish or create can bring in money 24 hours a day for the rest of your life.
Traditional work doesn’t do this. When you’re getting a salary or being paid by the hour, you’re expected to provide work for a set amount of time or complete a specific project and then get paid. Once your paycheck is deposited, there’s no more income from the work you’ve done. Your boss might continue to bring in money from your efforts, but you typically won’t see any of that in your own pocket unless your company chooses to give a bonus or incentive.
With passive income, the money keeps coming even when you aren’t physically present. Something people with passive income especially love is that it provides a consistent source of money even when they can’t actively work. Vacations are simple when you have passive income, and you have the freedom to take care of unexpected emergencies or opportunities because you don’t have to worry about your business.
Who Uses Passive Income?
Honestly, anyone who has truly made it big. No one becomes a millionaire from working at a job under a boss. Almost every millionaire- and billionaire- has established some form of passive income that continues bringing in money after the work stops. Many wealthy people use stocks, real estate investments or corporate investing to grow their money.
Retirement income is often a form of passive income. Money you put into a mutual fund or income-generating retirement plan keeps paying out long after you retire.
Setting Up Passive Income Streams
Setting up streams of passive income can take time. The initial outlay is generally unpaid, and you might have to spend cash upfront to set up your future money generator. Essentially, you need to put in either time or money, or some combination of both, to set up a system that generates money itself without your further input. There’s no easy path, but persistence pays off.
The Dirty Secret of Passive Income
So here’s the part where we tell you the catch to passive income. The big dirty truth: It’s never entirely passive.
The point isn’t actually to never put any time or effort into generating money. It’s to put minimal effort in for the highest return you can get. Even the most passive moneymaking schemes don’t let you be entirely hands off forever.
You’ll still need to manage your website, keep an eye on your stock prices, check on your vending machines or whatever it takes to keep that passive income rolling in. But the handful of hours each week or month that it takes to maintain a residual income source is much less than it takes to work a real job. And the long-term financial potential is much higher.