What Is Passive Income?

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What is Passive Income? | A Beginners Guide

A lot of people will define passive income as some sort of investment that you have made like rental property, running an Airbnb, or playing in the stock market. Since this website is about passive income for beginners, we will look at the easier ways to make money with less upfront investment.

Passive income in a nutshell is automated income earnings that you make while you’re not sitting at your desk.

Breaking down what passive income means

Going to work at a 9-to-5 job requires you to work those hours and exchange your time for a salary or hourly wage. With a passive income plan, you basically do the work upfront and after you have completed your task, you can generate revenue residually after the fact.

There are hundreds, if not thousands of ways to make passive income, including drop shipping, selling digital products, teaching online courses, becoming a blogger, and much more. Each of these passive income ideas requires you to put in the time and energy upfront and if you do it correctly, you could be making money day or night or even while you’re on vacation.

Two main types of passive income

Being a creator – earning money from doing the work upfront. Providing a service or product that automatically generates income after you have put in the hard work. Some ideas include developing an app, selling stock photos online, creating a print-on-demand store, or creations of this nature.
Becoming an investor – typically you have to have money to make money in this scenario. Some ideas as an investor include renting your RV, vehicle, or a portion of your house, peer lending, mutual funds, and making dividends from the stock market. Since this website is about passive income for beginners, we suggest you make it big as a creator, and then you can become an investor.

Passive income and active income - What’s the difference?

Passive income requires work upfront, and active income is earned through output or effort.

You have to work hard for both passive and active income, however, the difference is when the work takes place. For instance, if you work as a freelancer and are hired to write a blog post every month, you would generate active income. If you have your own website and write blog posts and insert affiliate links, you would generate a passive income that continues to pay you for as long as that content is getting clicks.

Earned income comes with some benefits that passive income does not. Some companies that provide earned income will have a 401(k), health insurance, and other benefits and do not carry as much risk as passive income.

Passive income is a great way to make extra cash as a side hustle, in the beginning, and once you become a pro, you could turn it into a full-time money-making opportunity. Read my passive income journey.

Benefits of passive income

Work from anywhere in the world.

Working in the passive income field can truly give you location independence. You can work from anywhere in the world, as long as you have the Internet and a computer.

Make a recurring cash flow

Once you begin making passive income and find the formula that works for you, you can duplicate that effort and the cash flow follows. Having a recurring cash flow allows you to save money, increases your net worth, and gives you the freedom to work from anywhere, at any time you want.

Passive income allows you to live free

Having multiple streams of passive income allows you to live a life free of the stress and anxiety that comes with endless bills. Being debt free is the most rewarding feeling you can imagine.

How much can you make being a passive income beginner?

The sky is the limit on your passive income-earning potential. Based on how much you put into it and the techniques you use, you can earn some beer money or make it a profession and make a six-figure income.

If you’re looking at using your money as an investor and making a passive income that way, you can yield anywhere from one percent to 10% per year on your investments.

As a passive income online creator, you can easily earn a living and make more than you did working a 9-to-5 job. There is a lot of work and effort to achieve this, however, there are lots of people out there who do this consistently.

Is passive income taxed?

Depending upon where you live in the world, we would assume that your local government wants its fair share of your revenues.

For example, if you are a United States citizen, do banking within the United States, or have an address within the United States, the IRS would most likely tax any revenues you make. Also, you may need to pay local (ie: city, county, state) taxes as well.