What is passive income? Is it really possible to earn money without working? What does it take to get started?

You've probably heard about the concept of passive income before, but maybe you don't fully understand what it means or how it works. In this blog, I'll explain what passive income is, why it's important and the main focus, the truth about starting passive income streams.

Passive income is a type of income that comes from assets such as real estate, stocks, bonds, and other investments. The key difference between regular income and passive income is that the former requires effort and time, whereas the latter can generate revenue without much effort on your part.

What is Passive Income?

When we talk about passive income, we are referring to an asset-based source of income. This includes things like interest, dividends, rental income, royalties, annuities, long term care insurance payments, nonqualified pension distributions, investing in the stock market, business income and more.

To start off with, the type of income most people would usually get from working a day job is known as active income. Active income is defined as all the money earned from work (wages, salary, commissions, tips, bonuses, etc.). It’s also referred to as earned income. Essentially to make money through active income, you have to trade your time for money.

Passive income differs from active income as it doesn’t require any form of labour or physical activity to create it, there is a caveat with this I'll talk about in the next section. You don’t need to be employed by someone else in order to receive passive income. Instead, it is generated when you own something and let it produce value. 

What Passive Income Really Is.

Now onto the truth of passive income. Although for many people, passive income may seem like this bizarre phenomenon that only exists to scam people into buying courses or books promising them riches overnight, it is actually a real thing that anyone can achieve.

The only problem is that you don't just get this by doing some small tasks and boom... you have a money printer. In fact, you actually have to put in A LOT of work. If you want to build an investment portfolio for example, well you have to work for the money to start investing in the first place and for most people, it will be a slow journey of consistent investing before being financially free.

Or for starting a business and becoming a business owner, well you would likely need some sort of initial investment to get into business and once again you will have to put the time into building the business. This of course means you may work for a very long time without making anything which often deters people from trying to build other passive income streams.

Even this project for example (Portfolio Hub). I have been working on it for over 200 hours part time since January this year from coding the website to creating blog posts all around my day job. Currently the website has made a grant total of... nothing. That's right, nothing yet even though I am running ads. But this isn't me complaining, in fact this was expected.

Growing some form of passive income stream will always take time. I used to have a YouTube channel that took 3 years to start making money and even to this day its total earnings in 1 month was only £30. Although I was happy with the result, the many hours I put into making all of the video content likely means I have been paid much less than minimum wage.

So this brings me to my next point. You must enjoy what you are doing. I didn't stick with my YouTube channel just in the hopes it would make money one day. I stuck with it because I enjoyed the videos I was making. Used to be gaming videos and then became a tutorial channel. 

Similarly with this website, although I hope I see some success and the channel at least manages to pay for it's running costs, even if it doesn't I have had a lot of fun making the site. I enjoy programming a lot and enjoy finances so making something I will personally use and can practice my hobbies means I always have motivation to work on it. If you don't like doing something, you will really struggle to motivate yourself.

The Rewards of Passive Income

There are two main reasons why you should strive to build up your passive income. The first reason is that it allows you to live life on your terms. It frees you from having to worry about financial security. You no longer need to stress about how you’re going to pay rent or feed your family. Instead, you can focus on growing your wealth so that you can live the life you truly desire.

I know there are lots of different ways to generate a passive income so I believe there may be something for anyone who wants to look for it. However, I do think that passive income ideas need to be seen as something that still takes a lot of work, it's not easy. So picking something you enjoy to do which can also in the long term generate you money while you sleep will give, in my personal opinion, more fulfilment with what you choose to do.

This is why another major perk of passive income is that it allows you to do what you want to do assuming whichever income stream you pick is actually something you want to do. Most passive income streams still require some attention either to which investments you have to pick or the business' you have to oversee, true passive income is not really a thing in it's entirety.

Passive Income Examples

We have another blog post on our website where we discuss some different passive income streams. Although remember that these are not the only ones in existence and infect many ideas can be quite unique. Checkout the blog post below:

The Best Passive Income Ideas to Make More Money in 2022

We mention in the article but just to add it again, it's always worth combining multiple types of passive income in order to diversify and reduce risks. For example, with a blog you may make money through advertising or affiliate marketing or even sponsorships if possible. There are many ways to monetize many different hobbies and interests so try to be creative.

Summary

In summary, building a passive income stream is possible but requires hard work, dedication and commitment. There are no short cuts, but there are certainly easier ways to earn money. Don't get caught up in chasing after the quick buck just focus on enjoying the process.

Remember for any financial advice please speak to financial professionals. I am not a financial professional and my blogs are purely based on my knowledge and research.

I hope you have enjoyed this article and found it useful. Please share it with any friends or colleagues who might find it interesting too!

Thanks for reading 😁

FAQ

Is Passive Income Worth It?

Of course. But understanding what passive income entails is crucial. Sure, maybe you’ll make your millions one day and then be able to sit back and be passive while the interest and dividends roll in. I hope you will. But to get those millions, you’ll have to be anything but passive.

Source: (sba.thehartford.com)

What ISN’T passive income?

Passive income is not a “set it and forget it” type of business - you still need to get people to your site and into the “top of your funnel” (which could be signing up for your free email course, or registering for a webinar, or downloading a video). Passive income is NOT entirely passive!

Source: (fearlessceo.co)