What is Passive Income?

What is Passive Income?

What is Passive Income? Why is a huge population showing an interest in trying to learn how to generate passive income?  Income is categorized into two broad categories on the basis of the number of efforts you put in to earn it, the first one is Active Income which requires most of your attention, time, and efforts and the second one is your Passive Income which requires minimal or no attention, time and efforts. As far as active income is concerned, it is something that everyone understands very well, Active income is the income from something that people consider their ‘work’, it could be one’s Profession, Job or Business and it requires complete efforts from your side. This is very different in the case of Passive Income, it does not require a lot of effort and time, what it mostly requires is the willingness and a bit of a risk-taking ability. In the case of Passive Income, there again are two types of Income, one that requires a specific skill-set or set-up and the one that does not require any of it. The one that requires a specific skill-set or set-up again might require a lot of time for you to master that skill perfectly, in that case, such income sources too feel like a lot to do and thus becomes a barrier to people trying to earn Passive Income. 

Income sources like Multi Level Marketing, Digital Content creation, Affiliate Marketing and other similar marketing strategies, even though considered a ‘Passive’ Income source require a lot of time and efforts of yours. They are more aptly called ‘Side Income’. Where as income sources like Rental Income, Interest Income, Dividend, Capital gains i.e. Portfolio Income is a great way to earn Passive Income without getting involved too much. All one needs is the willingness to employ one’s wealth in different assets such that a positive cash flow can be derived from that.

Different Types of Passive Income from Wealth 

The income that comes from renting any property (Commercial or residential) is called Rental income and it is one of the easiest and the most common source of Passive Income. Choice of type of property to own is based on various conditions like the current market condition and stability in the rental income etc. 

The income that comes from the increase in the value of equity or stocks owned by one is called Capital Gain and the amount of profit that reaches a shareholder after the distribution is called Dividend. This asset class is high-yielding and risky in nature and so is the income from it. 

The income that comes from savings, other deposits and debt funds is called Interest Income. Debt funds are a safer asset class as compared to stocks but also has the limitation of fixed return from it because the interest rate is fixed. 

Here are few ways to create passive income that can help you have a stable source of income along with your Active Source of income which reduces your dependency on your active income and in turn, helps you follow your passion without any money worries, gives you support in times of crisis when your active income is shrinking something most people have realized in economic recessions.

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