Passive Income
What Is Passive Income?
Passive income is money earned from investments or assets that require little ongoing effort to maintain. Unlike active income, which comes from working a job or running a business, passive income typically comes from investments that generate regular cash flow.
Common sources include dividends, rental income, interest payments, and certain business investments.
Why It Matters
Passive income can help individuals build financial independence by creating income streams that are not directly tied to daily work. Over time, passive income may support long-term financial goals such as retirement or lifestyle flexibility.
Many investors seek passive income as part of a diversified financial strategy.
How Passive Income Works
Passive income investments typically involve:
- investing capital in income-generating assets
- receiving periodic payments such as dividends or interest
- reinvesting earnings to increase future income
These income streams may grow as investments increase in value.
Example
An investor owns dividend-paying stocks that generate quarterly income payments without requiring additional work.
Passive Income vs Active Income
- Passive income comes from investments or assets that generate income over time.
- Active income comes from wages, salaries, or work performed.
FAQs About Passive Income
Is passive income completely effortless?
Not always. Many passive income streams require initial work or capital.
What investments generate passive income?
Dividend stocks, bonds, rental properties, and REITs.
Can passive income grow over time?
Yes. Reinvesting earnings can increase long-term income potential.
Related Terms
