Gaining financial independence is what we all look forward to from a certain age. However, it might not happen soon enough with a steady income from your part time 9 to 5 job. Imagine you could make money by just chilling out on your sofa and doing nothing. Sounds too good to be true, right? Believe it or not it’s what thousands of people do everyday and that money made with little or no effort is called “passive income”.
There are a pile of ways you can earn passive income. Whether it’s by investing in certain financial products, starting businesses with little initial investment or simply through some ways of making money online, you can earn noticeable income without even having to work regularly.
In this article we’ll give you a general outline over what passive income is, its different types and how it’s made.
You may have heard the phrase “make money while you are asleep”. This is what passive income is usually referred to as, but there is more to it than that of being a goof-off and earning an income in reward. It is true, however, that a passive income gives you a vibe of “get rich overnight” but there is still work involved. It is just that in passive income you generate money from a source other than an employer or contractor.
According to the data collected from the Internal Revenue Service (IRS), passive income can come from two sources: rental property or a business in which one does not actively participate, such as being paid book royalties or stock dividends. So it basically does not need a lot of “active” work done. Passive income is usually taxable, but it is often treated differently by the IRS.
If you are a ‘be your own boss type of person’, then this could definitely be one of your options to generate income and create some extra financial security along the way as well.
While it might seem easy to build a passive income stream with a small investment, you’re not making any less of a commitment than someone actively investing their time. Active income is money generated from performing a service or generally speaking by making effort. The fact is that the money made with your active income depends directly on the continuation of this effort, meaning that if you quit there would no longer be an income made.
Passive income on the other hand, is money made from activities you are not involved in directly. A passive income does not have to do with the continuation of your action and the money might continue to flow in for years and years.
In addition, passive income does not come with a tax and even if it does, it is reducible by the use of potential tax reductions.
In terms of profitability they might both weigh the same but for those who are looking forward to achieving financial independence, passive income might be a better call.
The amount of money you make from your passive income can vary greatly depending on the time or effort you are investing in it. It could be as little as your monthly bank interest or the huge sum you’ve always dreamt of having. The good news is, it gives you the possibility to sit tight and enjoy the reward you are making silently but you need to bear in mind that it is never the story of get-rich-quick we’ve always heard from others. There is always an initial investment needed, may it be as little as $100. You might also have to pay for unexpected issues like the extra expenses for the repair of the house you are renting or the material you ought to buy for the job or etc.
A passive income can be a great side hustle for those who want to multiply their monthly income or reach financial security and independence at an earlier age than usual. There are a dozen ways you can earn passive income including: rental income, affiliate marketing, peer-to-peer lending, equipment leasing and finally something that is most trending these days which is cryptocurrency mining and staking.
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