What's the definition of passive income? Everything You Should Know in 2023 |
If you've been around the Internet, then you've encountered the term "passive income. The concept of making money while not actually working is thrilling as well, and it's used a lot in internet marketing. There are "passive income" ads on Facebook and Instagram.
In this article, we'll answer "what is passive income," as well as discuss the some of the benefits and disadvantages-in addition to giving you some real-life tips on creating passive income. Additionally, we'll provide the ideas of 45 ways to earn passive income and there's something for everyone.
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What exactly is passive income?
Definition of passive income
Passive income can be defined as a source of revenue that is without significant or ongoing labor and energy or the time to generate or keep in the majority of cases, it's produced by assets that generate cash flow. Passive income can be earned without or with minimal attention or effort by individuals, and there are many catchy phrases to describe the concept (e.g. "making money as you lay down" or "put your cash to work for you ").
If you're looking to know the most important factor in making passive income, it all comes down to one word: ownership. You need to either possess a cashflowing investment or stake an interest in a cashflowing asset to generate the passive income.
There are a few exceptions to this, but the majority of passive income requires some work. This could be relatively hands-off (e.g. interest from your retirement account) or may require a lot of initial effort prior to generating an income stream is created (i.e. creating a membership website).
The importance of passive income
Developing passive revenue streams is the foundation for building long-term wealth. If you trade your hours of labour for cash, you have a few problems. 1. You can only keep working so long as you're in good health and able. 2. You can only earn so amount per hour. In the end, you will be able to earn more. will be capped in its value, no matter how skilled you are.
Passive income could solve this issue by segregating your time working from your earnings.
Therefore "stop trading in your time to earn money" isn't just a slogan or catch phrase. It's the secret to building wealth. And everyone needs to do it. That's because having passive income will also help you avoid the most common thing that occurs to all humans eventually or in the future: you'll be in a state of health that makes it impossible to trade your labor to earn a living.
Example:
- Modern retirement relies by passive income. It's a matter of putting aside a percentage of your earnings (and when you're lucky, the employer will match it), until your investments make enough money so that you don't have to work anymore.
- For businesses, passive income can assist in expanding your business and offer a financial cushion. As an example, suppose your business owns your office building and leases out the space to a business, it creates a revenue cushion that has nothing to do with the product or service the business sells.
It is essential for all to find ways to build passive income that fit the goals of their financial situation and character.
Benefits of Passive Income
Financial freedom: Sooner or later, financial freedom requires passive income. In the past, people would wait for retirement in order to attain this. But more and more people are challenging the conventional wisdom and creating financial freedom even at younger ages. This was the whole point of the Financial Independence Retire Early (FIRE) movement; people have saved huge sums and put money into investments of their earned income in order to build an investment fund to be able to retire.
Diversification: Having all of your eggs in one basket can be a risk. Making use of different income streams to diversify your earnings can provide stability in the event that one of them fails.
Time freedom: "Stop selling your time in exchange for cash" was the passive income catchphrase; but it's actually true. If you can build an income that is passive that you are able to enjoy freedom to use your time however you'd like. There are those who lie on the beach, but a lot of people make use of financial freedom to train for a new career they are passionate about or even to begin an entrepreneurial venture that they are passionate about.
Gaining wealth: If your income exceeds your expenses, then you've got the recipe for building wealth. The more income that you earn, the greater opportunities you'll have to create wealth.
Passive income examples
Rental Income: If you have an investment property and you earn rent, it's an income stream that is passive. Some people also invest in Real Estate Investment Trusts, which could be another option to earn rent income, but without having the property.
Stocks: Having stocks or preferred shares in the company is an established way of getting passive income. This income could be earned through regular dividends that are distributed to shareholders or through selling the stock at a price that is higher. It is possible to do this for the individual stock or bundles of shares (index funds)
Royalties: They're not as common, but collecting royalties on artwork is an income that's passive as well. For example, Michael Jackson's music catalog brings in about $44 million in annual revenue-long in the years following his death.
Affiliate Marketing is less popular now, however at the peak of the blog craze a lot of people made money from affiliate marketing-where you placed products in your blog and earned a payment for the people who bought. Influencers can earn money through similar concepts, usually monetizing their followers with pitching products.
Licenses/IP: If your company is an inventor that has patented the technology you're able to sell it off to companies which make it. As long as you own the intellectual property rights to it, you can collect an income from this.
A membership-based community: Not many people realize that online communities with paid members can be a great revenue stream that is passive. Communities scale fast, don't need a lot of effort in order to run as well as, thanks to the member-generated content and AI automation it is possible to make money an income from a large community, which takes only some time each week to manage.
Online courses: If your sell the course as a prerecorded on your website or within your local community, you could earn passive revenue by selling the course.
Passive vs. Active Income
The definition and the differences
What is the difference between passive income?
Technically speaking, active income is a regular source of earnings to obtain, while passive income refers to the income that is generated by not working regularly.
This isn't actually the case. Most incomes aren't passive. A degree of work goes to earn any kind of income in a capitalist economy. But, in contrast the passive source of income, which takes little or no effort to generate an income, active income can be made through work that takes a lot of energy and time. Think wages and tips.
Passive income provides unequal return on the time it takes to earn it.
The hidden work behind passive income
There aren't many income streams that actually take no effort. Examples:
- If you've renovated the house you own to flip and then market it for sale to make a passive income, you've earned by the energy and time labor-intensive work that you did in the remodeling.
- If you've renovated the house in order to let it, then you've opened up an income stream that is passive from the rent money coming in each month.
Which one of them requires work? Answer... They all do!
The TRUTH is, literally every single passive income stream one can make requires you to put some money into it, either by investing time or money. Making money investments is the closest thing you can get to real passive income. For instance, if you invest in a low-cost index fund, you might simply let it grow over the course of years. But even most investors research their portfolios and spend in the least a little bit of time to balance their portfolio.
In addition, if you're constructing properties to generate an income that is passive, it'll need even more work. Starting an online blog. The launch of a course. Cleaning up and listing a rental unit. There is nothing that can be truly passive.
The difference is, for most of those passive income streams we talk about (e.g. blogging, courses online droppingshipping, etc.) The work is pre-loaded and/or the profit is astronomical in comparison to the labor involved. It means that you have to do much more work in the beginning to set them up, but then it's not nearly as hard to maintain it.
Here are the hidden labor costs that are present in many commonly used "passive income" examples:
- Rental units that are owned by tenants Costs of labor hidden consist of finding and buying the property, as well as dealing with the maintenance needs and issues of tenants and covering the costs if the unit is empty; cleaning and repairing in between tenants. It is possible to hire others to handle this task and manage the process, but it takes time!
- Starting a blog: The hidden costs of labor include getting the blog up and running; creating the design; finding and the cost of hosting (ongoing) and writing blog content, and keeping it up to date as well as learning about how to generate visitors to your site; establishing the monetization process; managing relationships with advertisers and affiliates; dealing with malicious attacks and much more! The process of creating a "passive income" option requires a lot of hard work!
- licensing IP: Hidden labor expenses include studying the field or a technology; finding a unique solution, determining whether it is available elsewhere; improving and testing, securing your IP (with lawyers) as well as getting a buyer, managing licensing agreements; taking action if someone infringes on you IP rights.
As you can see, when your idea of an income that is passive, such as "it doesn't take any work," none of these can be considered non-passive. They could provide high returns for your time.
The web and passive income
One of the reasons everyone recognizes the concept of passive income is due to the internet. Thanks to the internet.
Chances are, you've heard a professional tell you to be making money in bed through developing an online service that can bring you passive income.
So why is it that we hear more and more about passive income with the rise of the world wide web? What is the reason for thousands of users trying to make an income that is passive online?
This is what the web did in reality. was able to do.
The internet and the technological advances that went along with it made things easier for traditional enterprises had to devote hours on. Digital companies do not require those things that traditional businesses require like warehouses, fulfillment facilities delivery, product development, etc. Most of these essential tasks of business can be performed virtually and even automatized.
In many instances the discussion of passive income, we're really discussing the flexibility and scale that a digital business could provide.
Passive income - challenges and risk
If you're looking to create a passive income stream is important to know the challenges and risks which come with an income stream that is passive. Below are some points to think about:
- Initial efforts or investments The truth is that there's no passive income source that doesn't require an investment upfront. Each passive source of income will require an investment of either money or time (or both ).
- Nothing is guaranteed: And for that initial time and cash investment, nothing is 100% guaranteed. There is no business coach or positive mindset mantra that can change this: markets fall, products fail, competition eats all your food... Any venture is risk-free.
- There are bad actors In the world of internet marketing as well as IRL there are people who are bad actors, offering poor financial advice, a "easy 6-figure scheme," a get rich fast promise. It's amazing and is highly sought-after, but some people are willing to prey on other people's hunger.
- Monitoring and maintenance: You can and ask a blog's owner if their income is totally inactive. They'll tell you they are constantly updating their contents to ensure their traffic is coping with the modifications to the Google search algorithm which hurts their profits. Every form of passive income has to be monitored and care.
46 Passive income Ideas
Be aware that each passive income strategy involves costs, whether it's the time or money. When you are looking through these options, select ones that fit your strengths and your goals. Keep in mind that ALL of them have advantages and disadvantages. Don't make any investments without conducting your research and consulting professionals:
Business online build
- Communities: Community-based online communities create an income that is passive, typically via a mix of the cost of membership and other products. A typical community makes between $27 and $33 per month per member of recurring revenue and scale through the creation of content by users and AI tools that require little effort from the hosting company.
- Courses selling an asynchronous (pre-recorded) course is a great method to earn an income that is passive, or you can run a cohort course (live teaching) and make copies of the course after!
- Coaching programs: Selling 1:1 or group coaching programs makes great passive income. You could build a pre-built version of the programs.
- Digital downloads: Sell a premium swipe file or PDF for users to can pay for to download.
- Premium content Selling exclusive or gated content via a blog or membership site.
- Newsletters: Add a paid newsletter to your mailing list, or even add a paid newsletter to your membership site or community.
- Coloring books: Print coloring pages, wall art, or almost anything else your customers are able to print themselves and sell it online (e.g. Etsy).
- Blogs Write a blog and monetize it through affiliates or advertisements.
- Ebooks: Write an ebook and sell the ebook on your site or Amazon.
- YouTube Channels: Make and monetize a YouTube Channel.
- Social Media: Monetize your social media followers using anything from influencer marketing to community application!
- Software: Develop or purchase software that could be sold on a one-time or a monthly subscription.
- Print-based products: Products that are sold and shipped without you manufacturing (e.g. selling t-shirts using Printify)
- Create apps: Design or commission your own app and monetize it.
- Software plugins and extensions: Build tools that can be integrated with an internet browser (e.g. Grammarly).
- E-commerce store: An ecommerce store that you can place on your site or Amazon (could be dropshipping for greater flexibility).
- Stock photos: For photographers, selling images via Adobe Stock and Shutterstock could earn you a few bucks from the licensing.
- WordPress themes: Make WordPress themes and sell them on a marketplace similar to Envato and Code Canyon.
- 3-D model: Design 3D plans and market the models through Turboquid and Shapeway.
- Adobe presets Make presets or templates for Adobe applications and then sell them.
- Fonts Create fonts, then sell the fonts on websites such as So Fontsy.
- Digital experiences like Roblox games and in-app purchase, there's an abundance of experiences and games which can be made monetizable.
The Investments
- Dividend stocks Individual shares of established corporations which regularly offer dividends (payout of earnings to investors).
- Dividend ETFs: baskets comprised of stock (index funds) that look for high-dividend yields.
- ETFs or mutual funds: Bundles of equities that follow markets (e.g. an index that is tracked by S&P 500). S&P 500)
- Growth stocks in equity Investing in companies that are growing rapidly.
- High yield savings accounts as well as CDs: Investments with guaranteed interest.
- Government bonds are investments which (usually) offer guaranteed returns and are issued by the government.
- Commercial Bonds: Investments that guarantee interest (issued by companies).
- Real Estate Investment Trusts Put money into real estate to earn rentals without buying property.
- Preferred stocks: Specialty stocks that can come with the possibility of priority dividends. These are usually offered to employees.
- 401 K: Not an investment specific type however, it is a kind of account that lets the employer will match your investment.
Real estate
- Rental properties for residential use Rental units which benefit from tenants rental payments.
- Properties for commercial rental: Commercial buildings that collect rent from commercial leaseholders.
- Rentals for short-term stays: Prioritize high-yielding rental properties, such as short-term rental (e.g. Airbnb)
Ownership passive income
- Royalty trusts: Give an income on the basis of extraction rights (e.g. oil & gas ).
- Intellectual property: royalties that are paid by an organization that uses IP that is protected (e.g. patents and music catalogs etc. )
- Franchises Businesses who add new locations through replicating the business's existing one. The owner of the new business will pay franchise costs to the original owner.
- Content syndication A person pays you royalties to use your content that you've made.
Other ideas for passive income
- Peer-toPeer Lending: You can lend money online to a person who requires it, and then pay the interest.
- Investment into local businesses: Using your cash to support a local business (either to pay interest or for equity).
- Crowdfunded Business Investments: A option to invest in a company without the stock market.
- Peer-to peer car rental: List your vehicle on a carshare site, and earn when someone rents it.
- Vending machine: Own and stock vending machines and make money from the profit.
- car washes A computerized car washes is a local service which can operate without supervision and with a minimum of control.
- Laundromat A laundromat is a passive income company that is able to work even while you're away.
Passive Income Strategies
Long-Term vs. short-term strategies
For many it is necessary to be patient and patience. For example, if you're investing in the stock market or launching an online blog, it can take months and perhaps years of work before you see returns.
When you're considering what kind of passive income you'd like to create, think realistically regarding your timeframe and the date you can expect to see results from your efforts and money.
Diversification
As we mentioned in the beginning that diversifying your passive income sources and methods is a great idea!
Consistency
There are many passive income options available. You're likely to be carried away by "the most suitable alternative." But sometimes your greatest success lies in persisting until you can figure it out. (Definitely go through Martinus Evans's story If you've not already! It's really inspiring. )
Let's celebrate the boring
It's a sexy thing to earn, but when it comes down to developing passive income streams, sometimes it's not so attractive. Working hard. Planning out the program. Save the funds to invest. Posting in your community weekly. These small steps taken regularly over time that lead to an environment of success. Not the flashes in the pans.
Finding real opportunities
It's sometimes difficult to discern what an opportunity is, but occasionally, if everybody is on the same groupwagon, it's possible the case that opportunities are overcrowded. Warren Buffet has a saying: "be fearful when others are greedy and reckless when you see others being fearful ."
The point is, finding real income streams is a matter of shrewdness and involves ignoring the place where everyone else is, and using your brain to identify legitimate potential.
Use your strengths
Just because the latest passive income method is to sell NFTs does not mean you should do. Find a passive income stream that you are passionate about and interested in, that fits with your natural strengths. If you're a natural at teaching, start a course. If you're awesome in crunching numbers, and evaluating possibilities, perhaps you should spend some of the time you have investing.
Don't be afraid to pivot
It's important to be consistent, but equally important is knowing when to walk away when it's not working. If you find something isn't working after giving it a real shot, the product might not work for you.
Know your legals
The passive income can be compared to any other income-if you don't tell your government of it you'll be in trouble. Make sure you establish your tax and legal systems to safeguard yourself and your investments, and stay safe from the IRS!
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