How Passive Income Works

A very popular way to make passive income is via what’s called a dividend paying stock or equity investment. This is when an investor funds a business in such a way that they get paid a regular dividend payment- usually part of the company’s profits- with no work needed from their end.

The reason this is considered passive income is because you are not being actively involved in the business, you are just investing money in it. The hard work has been done for you!

There are many ways to invest in dividends. Some people start by reading about companies and buying shares of those firms. Through online brokerage accounts, investors can begin trading stocks immediately. Others find dividend paying mutual fund investments or annuity contracts where all the payments are set up before you buy into the product.

With both types of dividends, your money is invested in the company effectively giving you a slice of its earnings forever. These slices come in the form of extra capital which the company reallocates towards new ventures, expansion, etc.

Another way to gain passive income through dividends is via real estate. Buying a house and renting it out is one of the best strategies to use if you want steady cash flow. There are two main reasons why owning a home is great retirement income — interest rates on mortgages and tax benefits.

This article will go more in depth about how different types of dividend income products work and some examples of each.

Online income streams

how passive income works

A growing number of people are choosing to distribute their time more evenly among different sources of income. This is referred to as being passive because you maintain your source of income, without having to work hard to produce it.

The classic example of this type of income stream is someone who has an online business through which they make money. You do not need to be involved in the business day-to-day to reap the benefits.

You can choose to remain passively involved in the business by reading about it, studying how to improve it, or both. Once you have done that, then you can leave all the running of the business to professionals and return to your own life.

This is also true for the next level of involvement, beyond just reading about the business and experimenting with it. At this stage, you could hire hands to run parts of the business for you.

Online businesses come in many forms

There are several types of online business including:

Selling products or services via Amazon

Running a web design business or a website yourself

Creating eBooks or digital books

Writing a blog and charging advertisers to use space on it

Taking pictures and making stock photo albums

Starting a YouTube channel and getting paid per view

Finding ways to monetize existing blogs and sites

Most of these require no special skills other than writing, photography, and/or computer programming.

Popsicle stands income

how passive income works

Now let’s look at what some of the biggest passive incomes are not! A lot of people get this wrong. They think that if they keep working, investing, responding to messages, and promoting their business hard that more money will come in.

But this isn’t true for most people.

Only 5% of Americans earn enough income from their primary source of employment to qualify as “work rich.” (Source)

The other 95% work just to make ends meet. This is why there are so many overworked, underpaid individuals out there – we were born with silver spoons in our mouths!

If you can’t afford to stop working, then great! You’re richer than 95% of the world. But I suggest trying to figure out how to reduce your workload or find new sources of income to satisfy your need for personal success.

It’s an unfortunate truth, but being wealthy requires changing your perspective about success.

You have to realize that leaving your job and lowering your expectations is a good thing. It’s like buying a car that’s only got one gear- it’s fun to use once!

I know it feels weird at first, but I hope you’ll try to enjoy your less busy lifestyle without getting too attached to the things that bring you short term rewards.

Medical or pharmaceutical business

how passive income works

Starting a medical or pharmaceutical business is not like starting any other type of business. You will need to make sure your licensure, health licenses, and insurance are in order before you can offer your services.

Mostly, medical professionals are busy so there’s little opportunity for people to seek their services.

By being proactive about offering your services, someone will eventually ask you for help and you will get paid for it.

The easiest way to start giving medical advice is through another doctor or dentist that you trust. By doing this, it creates an impartial source of knowledge that others may look to.

Your colleagues and friends would also be good sources of income. They could always send you patients for a visit which would then pay for your services!

Medical billing is very time consuming as well so having some form of online revenue is helpful. There are many ways to do this such as creating an account with HealthTap or IZEA.

Rent to Own business

how passive income works

Running a rental property can be an excellent way to make money fast. All it takes is investing in some good real estate practices, picking the right location, and raising your rent just high enough to meet your overhead costs.

Running a rental property is not like running a restaurant, where you have to work hard for little return. With rentals, all you really need to do is keep up appearances, find tenants, and earn more than you spend.

But before you get too excited about owning a rental house, there are two things you must consider first.

How will you pay for the down payment?

And what will you do if you run out of income during a recession or other financial crisis?

We’ll talk more about each of these in detail later in this article, but for now, let’s look at how passive income works by example.

Gold and silver businesses

A growing number of entrepreneurs make their living through what is known as passive income. This is when they do not need to actively work to make money, instead, they earn it from sources that keep going up in value.

Most people talk about how to achieve this by doing what you love and making enough money to live your dreams, but there are actually some pretty easy ways to start earning with no risk or investment required.

With all types of passive income, you will always have something to spend your earnings on – whether it’s a new pair of shoes, a vacation, or investing for growth. And all of these things can easily be done at any time!

There are many different kinds of passive income, such as dividends from stocks, interest on loans, royalties for creative works, and even retirement benefits. All of these depend on the individual person, company, and/or government to continue giving away what they have.

I know it may sound crazy, but I assure you that everyone else my age (early 30s) has been talking about how to get this type of income for years now. It's definitely possible, and most people don't even realize it.

Real estate

how passive income works

One of the most common ways to make passive income is through investing in real estate. This is typically referred to as owning a rental property or renting out a room in your home as a Airbnb.

The key word here is invest. While it may not seem like much at first, buying a house is usually very expensive!

Fortunately, you can’t just go shopping for a house unless you have lots of money set aside to pay for it. That’s where investing comes into play.

By investing in real estate instead of buying a house directly, you get all the benefits of having a house with the flexibility of being able to rent it out if needed.

This way you don’t need to have lots of cash sitting around waiting to be spent. You can put your money to work helping you meet your other financial goals.

And since it's likely going to take some time before you recoup your investment, you have more time to let grass grow under your feet (no pun intended).

Online advertising

how passive income works

A growing number of people have upped their income by creating and investing in side businesses or what’s been referred to as “parapropery.” This is when someone cultivates a skill they are passionate about and offers it to others for a fee.

Many people make good money doing this, but not everyone does. For those who do, it is because they invested in learning the skills needed to run these businesses effectively and marketed themselves well.

There are many ways to make passive income besides starting your own business, however. By exploring the various options out there, you will know which ones work for you.

Some of the most popular methods include:


Diversifying investments is one of the best things you can do to ensure wealth accumulation. When done properly, this tactic helps reduce risk and increase returns.

By investing in several different types of stocks, bonds, real estate, and other assets, your money grows more slowly than if you were investing directly in high-risk, higher return assets.

This also gives you greater choice over how much money you want to invest and where. The more risky the asset, the less secure your money is, but maybe that’s what you’re looking for!

Surveying companies to see whether they would be willing to pay you to promote their products is another way to make passive income.

PPC advertising

how passive income works

A pay per click (or PPC) advertisement is when your site or business pays to show advertisements for a specific product or service on the internet. Companies use this technique in online marketing, with the help of technology.

Most major search engines offer a tool that allows you to advertise yourself or another person’s website. By using their software, they can determine which ads you will get to display according to who people are searching for information from.

This is different than normal advertising, where companies buy an ad spot directly on the web page or through YouTube, for example. With PPC ads, someone else's company paid for the space.

There are two main reasons why most people start doing PPC advertising. One is to increase traffic to their own site, and the other is to find new potential customers. It is considered a relatively inexpensive way to gain more exposure.

About The Author

Tiara Ogabang
Tiara Joan Ogabang is a talented content writer and marketing expert, currently working for the innovative company With a passion for writing and a keen eye for detail, Tiara has quickly become an integral part of the team, helping to drive engagement and build brand awareness through her creative and engaging content.
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