What is passive income? The Essential Information You Need for 2023 |
If you've been around the internet, you've likely seen the phrase "passive income. Earning money while not actually working is very exciting, and the term gets frequently used in Internet marketing. You may have seen "passive income" ads on Facebook as well as Instagram.
In this article, we'll answer "what is passive income," and will discuss its advantages and drawbacks, as well as provide some REAL HARD TRUTHS about creating passive income. In addition, we'll share the ideas of 45 ways to earn passive income and there's something for everyone.
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What is passive income?
Definition of passive income
The term "passive income" refers to revenue earned with no significant effort, energy, or time to accumulate or sustain; and it's almost always generated by assets that create cash flows. The passive income is earned with or without direct efforts or attention from an individual, and there are a lot of catch phrases to describe the concept (e.g. "making money while you sleep" and "put your money to work for you ").
If you're looking to know the most important factor in creating passive income, everything comes down to one word: ownership. It is essential to possess a cashflowing investment or stake the stake in an asset that is cashflowing to generate an income that is passive.
There are a few exceptions to this, but almost all passive incomes require certain work. It could be easy to manage (e.g. an interest payment from your 401k) or take a significant amount of upfront effort before passive income is generated (i.e. the creation of a website for membership).
Importance of passive income
Making passive revenue streams the basis for building long-term prosperity. If you trade your hours of work for cash there are a couple of issues. 1. It's only possible to work so long as you're in good health and in good shape. 2. There is a limit to how many hours per hour. Eventually, your work is bound to a certain value, no matter how competent you may be.
Passive income could solve this problem by decoupling the hours you work and your earnings.
That's why "stop trading your time for cash" isn't just a catch phrase. It's the secret to building wealth. Everyone should 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 no longer healthy enough to give up your work in exchange in exchange for a paycheck.
For example:
- Modern retirement relies by passive income. The money you save is a small portion of your salary (and if you're really lucky the company matches it), until your investments make enough money so that you don't have to be working anymore.
- For businesses, passive income can help you scale and provide a financial cushion. For example, if the business that you run owns the office space and leases the space to a company, this creates a revenue cushion that has nothing to do with the service or product you sell.
It is essential for all to discover ways to create 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. The majority of people have waited for retirement for this. But more and more people are challenging this narrative and are achieving financial independence even at younger ages. That's the essence in FIRE, or the Financial Independence Retire Early (FIRE) movement; people have saved huge sums and put money into investments of their earnings to get enough of money to retire on.
Diversification: Having all your eggs in one basket can be a risk. Using different passive income streams in order to diversify your income could ensure stability even if one source is not successful.
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 and have enough freedom, you're able to do what you want. Some people lie on beaches, but a lot of people use financial freedom to train for a new career they love or to start a passion business.
Wealth accumulation: When you earn more than your expenses, then you've got the formula for creating wealth. The more passive income you earn, the greater opportunity you have to build wealth.
Passive income examples
Rental Income: If you have an investment property and you collect rent, that's an income stream that is passive. Some people also put money into Real Estate Investment Trusts. This can also be a way of generating rental income without owning the house.
Stocks: Having stocks or preferred shares in companies is a tried and tested way of getting the benefit of passive income. The passive income can either be earned through regular dividends that are distributed to shareholders or from selling the shares at a greater price. It is possible to do this for individual stocks or groups of stocks (index funds)
Royalties: They're not as common however, collecting royalties from artwork is an income that's passive too. In the case of Michael Jackson, for instance, his music catalog brings in about $44 million in annual revenues following his demise.
Affiliate Marketing is less common now, but at the height of the blog craze a lot of people made income from affiliate marketing. This was when you put products on your blog, and you earned payment for the people who bought. Influencers earn money using the same concept, often monetizing their followers with pitching merchandise.
IP or Licensing: If you're an inventor who patents a technology, you can license it out to companies which manufacture it. As long as you own intellectual property rights, you'll earn the passive earnings from this.
A membership-based community Many people don't realize this, but online communities with paid members could be an excellent revenue stream that is passive. Community growth is quick, they don't require much work to keep running, and thanks to members-generated content and AI automation you can earn money from a thriving community that only takes just a couple of hours per week to maintain.
Online courses: If your sell an audio-only course through your blog or on your community, you can make passive money from the course.
Active Income vs. Passive. Active Income
Definition and distinctions
What's the difference between passive earnings?
Technically speaking, active income requires working regularly for it to be earned, whereas passive income refers to an income earned without regular effort.
This isn't actually true. Most incomes aren't in the form of passive. Some effort goes into any sort of earnings in an economy that is capitalist. However, as opposed the passive source of income, which is easy to earn and requires the effort of earning the income that is active, it's made through work which requires an enormous amount of time and energy--think tipping and wages.
Passive income provides a disproportionate return to the amount of time spent to earn it.
The hidden work behind the passive income
There are almost no streams of income that need no effort. For example:
- If you remodel the house you own to flip and sell it, you've made active income through the effort and time active work--you put into your renovations.
- If you remodel a house to rent it in the future, you've created a passive income stream by letting rent money come into your account each month.
Which of these takes work? The answer... They both do!
The TRUTH is, literally every single passive income stream that you could create needs an investment of either in time or funds. Making money investments is the closest you can get to real passive income-for example, if you put your money into a low-cost index fund you can hypothetically simply let it grow over the course of years. Yet, most investors do research on their investments, and spend at least some time balancing their portfolio.
In addition, if you're constructing investments to earn passive income, it will take even more work. Beginning an online blog. Launching a course. Cleaning up and advertising a rental. There is nothing that can be truly passive.
The difference is, for most of the income streams that passive people are talking about (e.g. blogging, courses online dropshipping) The work is front-loaded AND/OR the return is astronomical in comparison to the labor put in. It means that you have to do more labor up-front setting the site, but it's not nearly as hard in order to sustain it.
These are the hidden labor costs in several common "passive income" examples:
- Rental units that are owned by tenants: Hidden labor costs include finding and buying an apartment; handling maintenance and tenant issues, covering costs when your unit is not in use or occupied, and cleaning up between tenants. There are many ways to employ other workers for this job, but even managing this requires time!
- Starting a blog: There are hidden labor costs associated with creating the blog, creating the design; finding and paying for hosting (ongoing) and creating content and keeping it updated and learning to increase visitors to your site; establishing an monetization system; managing the relationships with advertisers and affiliates as well as dealing with malicious attacks; and more! This "passive income" source takes a lot of effort!
- Licensing IP: Hidden labor expenses include studying the field or a technology; finding a unique solution; determining whether it is available elsewhere; developing and testing; safeguarding your IP (with attorneys) and getting a buyer, handling licensing agreements, and even suing if someone violates your IP rights.
You can see that the definition of passive income is "it does not require any effort," none of these are passive. Instead, these could provide high returns for your time.
The web and passive income
One of the reasons everyone has heard of passive income is that it's because of the internet. Thanks internet.
You've probably heard a professional tell that you must be earning money sleeping by making an electronic item which will generate passive income.
Why do we talk more about passive income with the advent of the internet? Why are there numerous users trying to make an online income stream that's passive?
What the internet did in reality. did.
The Internet and the technological advancements that came with it made things easier for traditional enterprises had to devote the time to do. Digital businesses don't need the things traditional businesses need like warehouses, fulfillment facilities delivery, product development, etc. The majority of these vital operations can be carried out online and can be can be automated.
This means that in many situations the discussion of passive income, we're actually discussing the flexibility and growth that digital businesses offers.
Passive income is a challenge and risk
If you're considering building an income stream passively It's crucial to understand the dangers and threats which come with passive income. Below are some points to think about:
- First efforts or investments The truth is that there's no passive income source that does not require an investment upfront. Every single passive income source needs an investment either money or time (or both). ).
- It is not guaranteed. for that initial time and money investment, nothing is guaranteed. There's no business mentor or a positive attitude to change this. market prices fall, products don't work and competition can eat all your food... Every investment is without risk.
- There are bad actors In the world of internet marketing and IRL, you'll find people who are bad actors, offering poor investing advice, an "easy 6-figure blueprint," a get rich fast promise. Passive income is amazing and desirable. Some individuals are willing to feed on the hunger of others.
- Monitoring and maintenance: You can and ask a blog's owner if their income is totally passive. They'll tell you they are continually updating contents to ensure their traffic is coping with the adjustments to the Google algorithm, which can hurt their profits. Each type of passive income has to be monitored and upkeep.
46 Passive income Ideas
Be aware that each passive income idea involves costs, whether it's in time or cash. While you review the options below, pick one that is compatible with your strengths and your goals. Remember, ALL of them have positive and negative aspects. Avoid making investments without conducting your research and consulting professionals:
Digital business to create
- Communities: Online communities create the passive income needed to survive, often through a combination of dues for membership as well as other digital products. The average community earns $27-33/mo per member of recurring revenue and can scale with content created by members and AI tools that are low-effort for the hosts.
- Courses: Selling an asynchronous (pre-recorded) course can be a fantastic option to make money from passive sources, or you could run a group course (live teaching) and then sell copies of the course after!
- Coaching programs: Selling 1:1 or group coaching programs make an excellent passive income. You can build a pre-built version of the program.
- Digital downloads: Sell an premium swipe file, or PDF to users who can pay for to download.
- Premium content Selling exclusive or gated content via an online blog or a membership website.
- Newsletters: Sell an unpaid newsletter to your list of email subscribers or even add a paid newsletter to your membership site or community.
- Printables: Create coloring books as wall art or basically anything that your clients can print themselves and offer it on the internet (e.g. Etsy).
- Blogs Create a blog and monetize it by advertising or affiliates.
- Ebooks: Write an ebook and sell the ebook on your site or on Amazon.
- YouTube Channels: Make and market your own YouTube Channel.
- Social Media: monetize your social media followers with anything from influencer marketing to a community app!
- Software: Create or purchase software that could be offered for sale on a once-off or a monthly payment.
- Print products: Designs which can be delivered and sold without manufacturing (e.g. selling t-shirts using Printify)
- Build apps: Build or buy an app of your own and then monetize it.
- Extensions and plugins for software Create tools that could be integrated into an internet browser (e.g. Grammarly).
- E-commerce store: A store that you can place on your site or Amazon (could be droppedshipping for increased flexibility).
- Stock images: For photographers, selling images via Adobe Stock and Shutterstock can make you some money through the licensing.
- WordPress themes Create WordPress themes, and then sell them on a marketplace like Envato and Code Canyon.
- 3D models: Design 3D plans and market these through Turboquid or Shapeway.
- Adobe presets: Make Presets or templates to use with Adobe software and market the templates.
- Fonts: Create fonts and sell the fonts on websites similar to So Fontsy.
- Virtual experiences: Roblox games, in-app purchases, there's a myriad of games and experiences that are monetizable.
Investors
- Dividend stock: Individual stocks from established companies that regularly pay dividends (payout of earnings towards shareholders).
- Dividend ETFs Baskets made up of shares (index funds) with a focus on high dividend yields.
- Mutual funds, also known as ETFs (also known as mutual funds): Bundles of stocks which track an index (e.g. an index that is tracked by the S&P 500)
- Equity growth stocks: Investing in companies that are growing rapidly.
- Savings accounts with high yields as well as CDs: Investments with guaranteed interest back.
- Government bonds: Investments which (usually) are guaranteed to yields issued by governments.
- Commercial bonds: Investments that guarantee interest (issued by businesses).
- Real Estate Investment Trusts Invest in real estate to earn rents without the need to buy homes.
- Preferred stocks: Specialty stocks with priority dividends, which are often offered to employees.
- 401 K: Not a particular type of investment However, it's a form of account in which your employer matches investments.
Real estate
- Residential rental properties Rental units that are benefited by tenants' rental payments.
- Rental properties for commercial use: Commercial properties that receive rent from commercial landlords.
- Short-term rentals: Prioritize higher-yield rental properties, such as short-term rentals (e.g. Airbnb)
Ownership passive income
- Trusts in royalties: Provide an income on the basis of extraction rights (e.g. gas and oil ).
- Intellectual property: The payment of royalties to a business that has IP that is protected (e.g. patents, music catalogs, etc. )
- Franchises businesses who add new locations through replicating the business's existing one. The owner of the new location will pay franchise costs to the original owner.
- Content syndication: A person pays you royalties for the use of content you've created.
Other ideas for passive income
- Peer-to-Peer Lending: You can lend money online to a person who requires it, and then charge an interest.
- Investment into local businesses: Using your cash to support the local economy (either for interest or equity).
- Crowdfunded Business Investments: A way to make a profit in a company without the markets.
- Peer-to-peer car rental: List your vehicle on a carshare website and earn money the moment someone hires it.
- vending machines: Own and stock vending machines and get paid from the earnings.
- Washing cars An automated car washes is a local service that runs on autopilot with minimal oversight.
- Laundromat Laundromat is an income-generating enterprise that operates even when you're not there.
Passive income Strategies
Long-Term vs. Short-Term Strategies
In many cases it is necessary to be patient and patience. If, for instance, you are investing into the market or setting up your own blog, it may be months, or sometimes even years to work until you can see the results.
As you're thinking about what kind of income stream you'd like to create, think realistically about your timelines and when you'll be able to expect results from your efforts and your money.
Diversification
We mentioned at the beginning that diversifying your passive income sources and strategies is a great strategy!
Consistency
There are a lot of passive income sources out there. You can pretty easily get lost in "the the next thing." But sometimes your greatest success lies in staying focused until you have figured it out. (Definitely go through Martinus Evans' story in case you've never done so! It's awe-inspiring. )
Enjoy the dull
Passive income is sexy to have, but when it comes to creating passive income streams, it's not as than. Putting in the hours. Plotting out the plan. Making sure you have enough money for investment. Participating in the community on a weekly basis. The small actions you take regularly over time that lead to success, not the flashes in the pans.
Finding opportunities that are real
It's hard to know sometimes what an opportunity is however, when everyone else is already riding a groupwagon, it's possible that opportunity is oversaturated. Warren Buffet has a saying: "be fearful when others are greedy, and be excessive when people are afraid ."
The point is, the evaluation of real income sources requires a lot of wisdom, and often involves ignoring the place where everyone else is running and using your intellect to find legitimate opportunities.
Play to your strengths
The latest passive income method is to sell NFTs does not mean you should do. Select a passive stream that you are passionate about and interested in that matches your natural strengths. If you're good at teaching, start a course. If you're a pro at crunching numbers and evaluating possibilities, perhaps you should spend some of your time investing.
Be prepared to pivot
Consistency is important, but so is knowing how to let go when it's not working. If you discover that something isn't working after giving it a real shot, it might not be the right choice for you.
Know your legals
Passive income is like any other source of income. If you don't inform authorities regarding it, then you'll get in trouble. Take the time to create the legal and tax system to shield yourself from the risk of your investment assets and ensure you stay safe from the IRS!
Ready to get started?
If you're eager to begin creating passive income streams, come build with Mighty! You can create and sell classes, memberships as well as premium content and many more. Mighty is the one platform to build a successful digital enterprise And it's completely free to try to 14-days!