For most, working is a part of life. It gives us the means to afford the life we want, but what if there was a way to still earn money while cutting out the whole “work” part? Thankfully, with passive income, it’s possible. However, it’s recommended to have some sort of a day job to keep a reliable source of income coming in.
It can be risky to get a passive income up and running, but once it’s established, all the time and money you spent to have a work-free stream of money will be worth it.
To help you get a better understanding of passive income, let’s go over what it is, the benefits and challenges, as well as some tips to get you started.
What is passive income?
Passive income refers to money that you earn passively, i.e., without putting in too much effort. In contrast, active income is money that you earn from the business you own or the one you work for.
Active income takes a lot of hard work to earn. But passive income doesn’t require as much direct action.
In fact, many people describe active income as “money you work for” while passive income is the “money that works for you”. A common passive income example is having a rental property or renting out rooms in your home.
Benefits of Passive Income
It is a consistent stream of income.
Contrary to popular belief, passive income is, for the most part, a regular and consistent stream of income. Once you set it up, you may not have to do too much to nurture it. The money keeps flowing in at regular intervals.
It takes less work to maintain compared to active income streams.
Passive income is the best way to earn money through limited work. You don’t have to provide a service or sell a product to make this money. You will have to set-up the passive income stream and it will work on its own for a long while.
It supplements your active income source.
Passive income is the best way to earn extra pocket cash. If your active income is lower than your expectations/needs, a passive income stream can supplement your salary.
It allows you to pursue your passion.
You may have taken up a job only because it helps pay the bills. But you may not really enjoy it. If you have a passive income source, you will have the freedom to pursue careers you are passionate about, because you have a steady source of income.
It gives you greater flexibility and work-life balance.
In some cases, people make their passive income their active way of earning. This means you can start focusing on nurturing different passive income sources, so you don’t have to be in a full-time job. This will allow you to have a work-life balance and pursue your life goals.
Challenges with Passive Income
Passive income comes with risk.
Passive income is stable only when the source of the income is stable too. If your income source does not perform well, you face the risk of losing your passive income. For example, recession can lead to low demand for rental housing, affecting your ability to earn passive income from renting out your property.
Passive income cannot sustain growth on its own after some time.
Your passive income stream may work very well for a few years. But as markets and industries evolve, your income experiences change too.
You will need to actively monitor your passive income sources and decide how best to manage them. If necessary, you should be willing to reallocate your investments to a new passive income stream at the shortest notice.
Additionally, it takes a lot of discipline and dedication to improving your income sources. This may not be everyone’s cup of tea.
Passive income takes a high initial investment to start.
To get something out of this income stream, you need to put something in first. This is your initial investment.
For example, if you want to rent out your cars to a taxi service, you’ll need to buy these vehicles first – which can cost a lot of money. If you don’t have the money to put into a passive income stream, you won’t be able to earn any money.
Not every passive income source works for everyone.
Your friend may find it easy to earn passive income through investment in shares. But you may not have a knack for financial investments. In that case, you’ll need to experiment and try different income sources, before choosing one that works best for you. This can cost time and money.
Many people describe active income as “money you work for” while passive income is the “money that works for you”.
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Tips to Earn a Steady Stream of Passive Income
Choose an income stream that is compatible with your strengths.
If you’re not really financially savvy, its best to avoid financial passive sources. Instead, consider social media/content creation, art, or everyday activities such as driving, cooking etc. and think how you can convert them into a passive income stream.
For example, you can rent out household items to people in exchange for fees. If you have two wine coolers, why not rent them out to a neighbor during summer? You will only need to do the occasional maintenance work to ensure your item is in good condition.
Keep track of how your industry/market performs and make necessary changes.
Read newspaper reports of political events, stock market opens/closes, and consider changing buyer trends. All of this can affect how specific industries will perform.
So, let’s say your stocks are falling. You should be willing to move money around, so you don’t experience losses.
Or, let’s say you had written a blog three years ago for your affiliate campaign. But now customer ideals have changed. You may need to update or rephrase that blog so it matches current expectations, so you’ll continue to earn money.
Add new sources of income to your portfolio.
Relying on a single source of passive income can limit your earning capacity. Instead, branch out and start multiple sources of income. That way, even if one stream experiences a loss, the other streams will make up for it.
Protect Your Financial Stability with the Help of Life Insurance
Most people who earn passive income set that money aside for a rainy day. While passive income sources are relatively stable, you have to be ready for the unexpected. You never know what life may bring, so securing your family’s financial future is critical. Especially if they’re dependent on your income.
At Quotacy, we understand the importance of being able to provide for your loved ones. One of the most important financial investments you can make is term life insurance.
A term life insurance policy is affordable and can be customized to fit your needs and financial goals. It will also bring you peace of mind knowing your loved ones are protected.
To see what you’d pay for life insurance, start with a free quote today.
If you’re not sure how much coverage you need, check out our free life insurance needs calculator.
This article is for general educational purposes only and is not written by a financial advisor.
About the writer
Director of Creative Strategy
Greg is Quotacy’s Director of Creative Strategy. He has an eclectic past from working on movie scripts to creating ad campaigns for major brands. His love of creative solutions drove him to strategy, and he now uses his powers to help families protect their loved ones. Outside of work, Greg spends his time off the grid hunting, fishing, camping, biking, hiking, and walking his dogs.