Having a passive income ensures more financial freedom and releases you from the traditional workday to provide alternative investment opportunities to make money.
In addition to giving you time back, passive income can also help you focus on worthwhile financial goals, such as securing funds for retirement. It also might serve as a good backup income in case you decide to quitor suddenly lose your job.
In this article, we explain what passive income is and why it’s important, plus five ways to build passive income.
What is passive income?
Passive income is money you earn on a regular basis from work that is already completed or from work that requires little to no effort on a daily basis. Examples of passive income include royalties from books, percentages of sales made from links on your website, rent from property or interest earned from your savings accounts. Passive income is the steady flow of cash that will build security over long periods of time.
In comparison, active income encompasses your wages, salary, tips or commission earned from services with material participation. A consistent paycheck earned by a teacher or accountant and payments for services like plumbing are all examples of active income. The earner must work on a continuous and consistent basis.
If you are currently earning an active income but have dreams of an easier or happier life, you may benefit from building a passive income. Whether this means starting a blog or renting out property, there are plenty of passive income options that can help you achieve your monetary goals in a more enjoyable and efficient way.
Related: 20 Side Jobs To Generate Additional Income
Why passive income is important
Passive income is often referred to as money earned overnight while you sleep. It is a way to have your money work for you while you passively benefit from the work you have already done, the commitments you have made or the investments you chose. Here are five reasons why passive income is important and can benefit your life:
Frees up time: Time is considered one of our most valuable assets. Unlike money, time cannot be earned and is a finite resource. Although you will not be free of all responsibility, passive income allows you the flexibility to spend your limited source of time doing things you choose rather than only completing tasks to pay the bills.
Allows you to pursue passions: With freedom of time comes freedom of choice. Earnings from a passive income may allow you to pursue your passions or participate in altruistic efforts to better society, which may result in a more fulfilled and better quality of life. This gives you the opportunity to make stronger and more meaningful connections with the people and world around you.
Reduces anxiety and stress over the future: Passive income serves as security and helps alleviate the worry of being unable to pay bills. Passive income provides financial support and future stability, which results in the financial momentum to effectively manage yourself, your time and your assets.
Provides financial stability: The financial stability passive income provides may help you retire early or comfortably, and it allows for financial growth. The ability to focus on growing wealth rather than simply maintaining your current quality of life creates monetary clarity and helps you achieve your financial goals more quickly.
Allows you to work from anywhere: When you are not confined to earning a biweekly or monthly salary, you have the freedom to work from anywhere. Your passive income creates flexibility in your life that other modes of earning money may not. The opportunity to work from anywhere provides time to travel or pursue other activities in order to enjoy your life while still maintaining your standard of living.
Related: Guide: How To Choose a Career
Ways people build passive income
Earning a passive income will take an investment of either money or time upfront. You can begin earning a residual income through several different outlets, and it is important to choose one that best fits your life and skills. Here are five possible options to consider:
1. Rental property
You can earn a passive income by renting out a property you already own or by investing in new properties. It can take a lot of time to learn how to make it a profitable venture, so you might consider hiring a management company to monitor the property and communicate with renters.
Related: 17 of the Best Self-Employed Jobs
2. High-interest checking and savings accountsThere are several options for online savings and checking accounts that offer more than the average interest rates. Having money in these high-earning accounts is a great way to earn a passive income with little to no risk. It will take time to begin showing any benefits, but you may consider this option for its simplicity.
3. Affiliate marketing
If you run or are considering running a blog or website, affiliate marketing may be an effective source of passive income for you. Essentially, website owners, bloggers and social media users can promote a third party's product by linking it to their own accounts or websites. This requires you to have a platform to promote other companies or affiliates. If you do, it can be an easy way to earn money passively.
When a link from your website, blog or other platform is used to purchase a product, you earn a small commission. This process entails you building a following of trusted users and then harnessing your credibility and their trust in you to promote your partners.
4. Advertise on your car
Driving around in your car is another easy way to earn a passive income. If you have a good driving record, you can contact a specialty advertising agency that can analyze your habits and driving area and match you with appropriate advertisers. They will provide you with a "wrap," a magnet or vinyl decal that is safe for your paint job to place on your vehicle. You can then begin earning money while you drive.
Some agencies pay by trip or time commitment, while others will track your mileage and pay per mile. You could be provided with other perks as well, such as a gas card or a monthly allotment of money to cover the price of gas.
5. Digital products
Selling an online product involves identifying and analyzing a need and then effectively creating an e-book, information guide or other marketable product to sell online. The initial investment of time and effort is a big commitment, but you can make a great deal of residual income with this method. The one-time content creation effort can be sold over and over again, amounting to a much larger source of passive income over time.
