What is Passive Income

One of the terms that is always circulating the personal finance area is the term “Passive Income”.  What is passive income?  Why do we keep talking about it?  How do we get it?

What is Passive Income

Passive Income is income that you don’t have to actively work to attain.  Residual income like royalties on a book, dividends on dividend stocks, and interest earned are all examples of different kinds of passive income.  Some would argue that the work you have to put into all of those to write the book, purchase the stocks, or earn the money to make the interest make those less than passive, but in my definition, any income you earn that is new income, even if it is earned off of old income that wasn’t passive, is passive.

Why Passive Income

Income tax The reason that we all want passive income is pretty self-explanatory.  It’s additional income that you don’t output any work for.  You purchase the stocks, and the company just sends you a dividend check every quarter.  You write a book, and then the publisher sends you a check based on it’s sales.  You deposit your money, and it accrues interest.  Beyond that initial setup, you do no work to continue the income stream.

How to Make Passive Income

The how of passive income is usually where people hit the brakes.  You see, when people think passive income, they immediately think “easy money”.  But, the truth of it is that there is nothing “easy” about it.  You do have to put in the work to set it up.  Some passive income ideas are easier to set up than others.  If you’ve already got the money, you can pretty easily set up a passive income interest stream.  Or a dividend stock income stream.  But, unless you’ve already written several books, you’ll still have to write the book to set up the royalty stream.

The more passive income streams you have, the less work you have to do to maintain the level of income you have.  With some hard work to set them up, you can stop thinking about side income jobs, and thinking about how you’ll spend your “passive” time building more passive income streams.  It isn’t easy, but it can be very rewarding once you’ve got the streams all set up and working for you.  And, even if you have to do a little bit of minimal maintenance once in a while, you’ll still be earning far more for your time than you would on any non-passive income stream.

photo credit: alancleaver_2000

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