What is Passive Income?

If you have accounting classes in college, you may have come across the term Passive Income. Or if you're eager to attend financial literacy sessions, surely this term will be uttered ten million times.

Passive Income refers to earnings without need of the individuals' thorough and intense active participation. If you're an employee who wakes up 6:00 AM everyday (or whatever time you wake up) to kick your ass off at the office, complete reports and submit them on deadlines, then I'm sorry to tell you that you are not earning passive income, but active income. Actively performing services translates to active income.

Now, how to earn passive income? Note that passive income requires a little effort as well. This income doesn't just come out from nowhere. There has to be little investment: time, money and/or effort before you can earn passive income.

Examples of Passive Income are:

1 Rental Payments

2 Royalties

3 Franchise Fees

4 Copyrights

5 Blogs

6 Stock Dividends

7 Stock Price Gains and

8 Mutual Funds

Notice that before you receive income from above sources, you will need to have an output first: building structure, items for rent, books, business, literary, music, logo, designs, initial deposits, etc. Nothing comes for free.

The only difference between passive income and active income is passive income does not require daily efforts and services for an individual to continue earning. Once you have written the book and published it, you will just wait for the royalties to keep on coming. Unless you decide to make a sequel of course, then you'll have to exert effort again on your second book. For as long as your work is being published and bought, you will continue earning for a book you may have written 5, 10 years ago.

There should be an initial step. That's number one must do's for earning passive income. The rest is just follow through.

Now, I am not telling you to be all artistic and smart and start writing books and composing songs, unless you have that talent, though. You can earn passive income with your bank deposits. Your savings account and time deposits earn passive income. If you happen to go over your passbooks, you will notice figures that you haven't deposited but are added to your balance. Those numbers you see are also called passive income.

You may have heard of stocks and mutual funds all your life but haven't gotten the chance to try it. So I'll be introducing mutual funds in my next article.

Keep posted! :)


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