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What is Passive Income and How to Make Money Online

Imagine Every Minute Money Flows Directly Into Your Bank Account.

Whether you are sky diving in Hawaii or watching Stranger Things on Netflix, you are making money.

This is Passive income. But what is the definition of passive income?

Passive income has been loosely defined and thrown around over the years. Some are trying to build passive income when they’re actually active income.

First, lets define income (we should all know what that is).

Define Income

Income is money that is received on a regular basis through work or invest. There are three types of incomes; active income, passive income, and portfolio income.

Active Income

Active Income is when you exchange your time for a set amount of earnings. This is usually a job, a contract or a one time gig. For example, working as a web developer making websites for a design agency. The web developer gets money in exchange for his 8 hours spent everyday at the company. There is no occurring income after he’s off work.

In short, active income is trading time for money.

Passive Income

Passive income is an automated system through a business or any enterprise that can generate money without the need of you being there. Initially, you would need to build it up and setup a system. A traditional example would be renting out a property. This is only true if the cost of rent covers the mortgage.

If that web developer began developing website templates and selling it on Themeforest then he would be making passive income. He just needs to do the work once, upload his theme, and the money will start rolling in (after some hard work marketing it).

Some passive income has been commonly mistaken for portfolio income. Although they are similar, it is defined different under Internal Revenue Service(IRS) definition.

Portfolio Income

Portfolio Income are the earnings from investments such as stocks, bonds, dividends, interest, royalties and capital gains.

Why Focus on Passive Income?

Work 9 to 5 and you get a steady pay check every month. What happens when the company goes bankrupt over night though? The steady pay check doesn’t seem as steady.

Aside from that, the amount of earning every year is fixed. Maybe you get a big bonus or maybe you don’t. Your fate is still controlled by the company.

As for passive income, the growth is unlimited. The system can generate money without the need of you being there. You can travel the world and still receive a pay check every month. Your fate is decided by the hard work you put in.

Ways to Make Passive Income

Some common ways of making online passive income are:

  • Ebooks
  • Youtube videos
  • Blog
  • Amazon FBA
  • Affiliate marketing
  • Build an app
  • Selling t-shirts

There are still many ways to make passive income. These are just a few common ones people are doing.

The Process

There will definitely be a grind to build up passive income. It’s not something to achieve over night. Although its possible to build a Shopify store and put all your products up, it still requires a bit of marketing.

Hours of work and time is required to build up a steady stream of income. Many people get sold on the idea on passive income is something like this; upload an ebook, youtube video, or a product and the money rolls in with no effort or hard work.

They get discouraged after 2 or 3 days of no sales or views. You need to be persistent and give it some time before you can see actual results.

The Risk

There are little to no risk on starting a youtube channel, writing an ebook or selling t-shirts. Some might require some money upfront to start up, such as importing items to sell on amazon.

The only risk is not getting the results from the money you poured into marketing and advertisement. Ultimately, your time is what you would be sacrificing the most when building up a passive income.

Passive Income Resource

There are major players such as Pat Flynn makes their living around passive income and even smaller bloggers starting out their journey.

Here are some websites I go to when it comes to passive income:

Conclusion

Although I don’t suggest quitting your job to travel the world and live on writing ebooks, I do encourage you to get started on building your initial passive income. It can be done on your spare time over the weekend or after work. If you are determined to quit your job to become an entrepreneur, then at least have a few sources of passive income setup before venturing into it.

One Comment

  1. Chima Ezuo Chima Ezuo September 11, 2017

    This is it. In fact the 21st century wealth can only be built around passive income. As Kiyosaki rightly put it, there is nothing again like a secure job.

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