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What is passive income? You’ll find out here.

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What is passive income? That’s a really good question! A lot of people are wondering the same thing.

Passive income is an increasingly popular way for people to make money. Most people who have a passive income stream earn that income while also earning income from their job. Other people earn enough passive income that they don’t need to have a job.

Anyone can earn passive income – freelancers, entrepreneurs, company employees or retirees. Even teenagers can earn passive income.

A passive stream of income is a great way to give yourself more financial security. Before you can begin earning passive income, though, you first need to understand what it is.

Keep reading and you’ll discover exactly what passive income is.

What is Passive Income?

What is passive income? Discover passive income definition plus get 9 passive income ideas here.


Passive income is income you earn without working to earn it.

Earning money passively gives you the ability to create another stream of income for yourself without having to work at another job. When you have a passive income stream, you can make money literally while you’re lying on a beach, watching a movie or sleeping.

You do have to do some work up front to set up the passive stream of income, though, and you usually have to do some maintenance work after you’re finished as well. Once you get everything all set up, though, you can sit back, relax and earn money from your efforts. Passive income means you “set it and forget it.”

People set up passive income streams for various reasons, such as:

  • Supplementing income from your job because you don’t earn enough to live on
  • Wanting to cut down on the hours you have to work at a job
  • Striving to create enough passive income so you don’t have to work at a job at all
  • Setting aside extra money for savings, children’s educations or travel
  • Earning more money so you can retire early
  • Creating wealth

What is the difference between active income and passive income?

Active income = Money you earn for work you do while you’re doing that work. Once you stop working, you stop earning money.

Passive income = Money you earn for work you do after you’re finished working. Once you stop working, you start earning money.

Is passive income taxable?

Probably. Wherever you live and earn passive income and whatever type of passive income you earn, it is usually taxable.

Beach with birds and colorful umbrella in the background

Is it possible to live on only passive income?

Yes, it is.

It’s not that easy to live only on passive income, so it’s not that common. There are people who do this, though.

Many of them live in countries where the cost of living is low so that their passive income will stretch further. Some people make so much passive income, though, that they’re able to live anywhere they want even, even if that location has a high cost of living.

If you want to be one of the people who lives entirely on passive income, you should definitely try to make it happen.

But how?

How to make passive income

Earning passive income is definitely do-able. If it required no effort and was the easiest thing in the world, though, everyone would be doing it. Getting to the point where you can lie on a beach while earning money requires some work and know-how. Here are a couple examples of the work and know-how that can get you to that point on the beach.

Let’s first take the example of creating a passive income stream with affiliate marketing. With affiliate marketing, you sell products online that are created by someone else. This is usually done by placing links to those affiliate products on your website or blog. When someone clicks on one of your links and then buys a product, you earn a commission.

However, it’s a lot of work to build a website or blog and then, after it’s built, to create content for it, maintain it and promote it. Most affiliate marketing is done through blog posts, and those blog posts can take quite a bit of time and effort to create.

So while affiliate income is earned by someone purchasing a product through an affiliate link on your site while you lie on the beach, the path to that spot on the beach is filled with work.

However, it’s much less work – and also usually a lot more enjoyable – than having a job.

Another example is rental income. If you have a room or an entire property you can rent out, that can be an awesome source of passive income.

However, first, you need to clean the property, make sure it’s in good working condition, possibly paint it, possibly buy some new light fixtures, new appliances or new furniture for it. You also have to advertise it. After a tenant leaves, you have to clean it and prepare it for your next tenant.

While your tenant is in the property, though, you sit back and collect the rent money. This again, can be more money than you would earn working at a regular job. And it’s definitely a lot less work.

So passive income streams do require some work, but most of that work is done up front. Then you can for the most part relax and earn money.

There are lots of ways you can earn passive income, such as:

Now that you know the answer to the question what is passive income, you should really consider setting up a passive stream of income for yourself so you can have not only more money but more security.

Want to learn more about how to earn money working for yourself? Take my free 7-lesson minicourse Get on the Right Path to Freelancing here.


Images by: Free-Photos and Toni Reed

Sabina Lohr is a lifelong freelancer turned entrepreneur who created World of Freelancers to help others discover how to work for themselves online and live the freelance lifestyle. She’s always really enjoyed the freedom that freelancing brings, including several years on and off of working online while traveling and living abroad.

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