What Is A Passive Income?
A passive income is an income that requires little to no effort to earn and maintain.
Passive income is earnings made with minimal labor, and it is the opposite of active income. It involves revenues from business activities, such as rental property, limited partnership, etc., in which an earner is not engaged in active participation.
Passive income appeals to many people because it does not require an earner to commit too much time and effort. Generally, it entails making your money work for you, for instance, making an investment that produces dividends or interest and appreciates over time.
There are several ways an individual or organization can earn passive income. The following are some common ways people make money passively today:
Dividend stocks: These are companies that pay a portion of their earnings to investors regularly. Dividends are paid per share of stock, so owning more shares equals a higher payout.
Affiliate marketing: This is when an online retailer pays you a commission for traffic or sales generated from your referrals. It involves recommending products to your friends, family, or followers, and when they purchase them, you get paid a commission.
Lease: It involves allowing someone to use your property for an agreed period in exchange for money. Typically, you can let people lease your house, land, and vehicle.
Silent business partner: This involves contributing financially to start a company but leaving the day-to-day operations to someone else. Your investment earns you percentage ownership of the company, and you get paid a share of the profits regularly.
Social media influencer: This applies to people who have a large fan base on social media. They get paid for posting adverts on their page and commissions from affiliate marketing.
Passive Income Example
Larry and James are brothers who decide to start a car washing business together. Larry is gainfully employed, while James is not. They agree that Larry will fund the company as a silent partner and own 60% of it, while James will manage the day-to-day operations and own 40%. They start the business, and every month, James remits a share of the profit to Larry’s bank account.« Back to Glossary Index