What Is Passive Income And How Does It Work?

So what is passive income? That’s a good question. Technically, it’s when you earn revenue without doing anything to promote or create that income for yourself.

Most people associate the term “passive income” with things like dividend income, rental income, and interest. But there are actually many more ways to get this type of income.

Some examples include:

Surf the web for free using pre-paid accounts and earn advertising money

Create a simple website or app and earn revenue through advertisements or affiliate marketing

Start a business and have it run itself (without your constant involvement)

These types of earnings go beyond just dividends and loans; anyone can do it! If you want to try one of these out, you don’t need to be rich to start. In fact, most aren’t very expensive to begin.

It takes some time to find which ones work and stick, but once you do, you will never look at spending money the same way again. Plus, you’ll feel better knowing you left this thing behind and it worked anyway.

Examples of passive income

Many people get hung up on defining what it means to have “passive” or “no-job” income, but they fail to realize that most wealthy individuals in this country do not actively work to earn their money.

The term “passive income” was coined in an article published by billionaire investor Benjamin Graham back in 1978. He defined it as revenue that comes to you without your active involvement in bringing about its acquisition.

This is different from earnings produced through regular job opportunities where someone pays you to perform specific tasks or services.

With passive income, you create or develop assets (lots of them) that generate steady revenues for you. These assets include, but are not limited to, the following:

Real estate

Businesses

Rental properties

Licenses and registrations

Online resources and courses

Data products such as lists and reports

These things make up your recurring monthly income. Some require more initial investment, but others continue to produce money for you over time.

By investing in these types of assets, you start building wealth. Wealth does not depend on one thing, which makes it harder to be depleted.

It also creates additional options for you because you do not need to run into employment to survive.

Online business

what is passive income and how does it work

Starting an online business is one of the best ways to gain passive income. By offering your services or products through online platforms, you get to avoid many of the overhead costs that traditional businesses have.

By outsourcing these tasks, you free up time to do things you want to do. This could be spending time with family, reading books, or investing in more education.

There are two types of online businesses – ones that produce content and make money off of it (bloggers) and ones that sell a product or service (marketing sites). The first type is much harder than the second, but can still earn you substantial income.

Blogging is a great way to start an online business if you don’t feel confident in your writing skills yet. There are plenty of free blogging software and websites out there that anyone can use to begin publishing.

You will need to create content for this to work, though – something that people may or may not pay for. Writing is a valuable skill that most people know so it doesn’t cost too much of a investment.

App business

what is passive income and how does it work

Running a business that makes money passively is usually done through an app or software service. You create a product or service that people want, then you get paid for it by someone who uses your product or pays to use your service.

This is what I call indirect monetization — instead of having one individual pay you for your product, the whole community does!

By offering your services free of cost, you’re creating a back-door way to make money from your products and skills. You just have to be careful about how much time you devote to these services so they don’t take over your life.

There are many ways to earn extra income via apps and other ways to provide value to others through the use of their apps.

I will discuss some examples in this article.

Real estate

what is passive income and how does it work

One of the most popular passive income sources is real estate. This isn’t to say that owning a house is easy, but many people have built large fortunes from developing or buying property.

There are two main reasons why this has been such a successful strategy. First, you can invest in land or buildings and earn money from it for years to come without too much effort.

Second, there are lots of ways to make money from investing in real estate. You may be able to pick up a properties and rent it out, manage an existing rental property, or run your own boarding house.

In fact, some people make their living off renting out bedrooms or apartments!

With all these possibilities, real estate seems like a no-lose situation. But before you dive into the world of investment real estate, do some research and figure out what types of investments are risk free. For example, how risky are mortgages? Are dividend paying stocks more secure than growth companies?

This article will talk about some simple strategies for creating additional income through real estate. We will also look at some examples of different types of real estate loans to see how safe they are.

Stock markets

what is passive income and how does it work

A common way to create passive income is through investing in the stock market. This is called investment dividend income or steady income. Companies that we invest in get paid our (the investor’s) money back with their dividends, so they are not spent. These dividends are typically distributed all of the time, automatically, without you having to do anything.

Stock indexes are groups of companies that are similar to each other in some way. For example, there is the S&P 500 index, which contains five major companies in America. These companies are all large corporations that have good financial statements and lots of revenue. They are valued together because they share similar strengths.

Other examples of stock indexes include the FTSE 100 in England, Japan’s Nikkei 225, and Germany’s DAX. People use these indexed lists for an average value, so even if a company drops out, another one will take its place soon enough!

There are many ways to profit from stocks. Some focus more on buying low and selling high, while others sell at a loss but buy a lot. The best approach depends on your goal and risk level.

Investing in bonds

what is passive income and how does it work

One of the most popular passive income strategies is investing in bonds. Bonds are securities that pay interest to holders, usually at regular intervals (usually monthly or quarterly, but not always).

Bonds can be very stable, which makes them excellent investment options. Since they do not produce an immediate return, investors have time to research the bond before buying it, which helps mitigate risk.

There are many types of bonds, with different rates of return and lengths for when the money is paid back to you. Some even earn dividends, which help increase your wealth by paying you a small amount of the bond’s value every year!

A wide range of people invest in bonds as part of their savings strategy. Celebrities like Warren Buffett are known for his vast holdings of debt securities.

Investing in shares

what is passive income and how does it work

One of the most popular ways to build wealth is investing in stocks. This is also one of the hardest to do well because it can be expensive!

Trading or buying and selling a stock means you’re paying for the privilege of owning that share. The price of a stock goes up when people want to buy more of it and down when they want to sell off some of it.

The thing about investing though, is that you don’t need to hold onto your investments forever. You can spend time looking after other things (like your home) while still getting paid!

This is called ‘the portfolio approach to investment’. And there are many different types of investor out there who use this strategy.

Some may invest their money in bank accounts or bonds, whereas others might invest in technology stocks or real estate.

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