Passive Income Explained: How Passive Is It?

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The opportunity to make money while we sleep is one that few of us would turn down. And passive income, at face value, suggests we can do just that.

Social media is full of influencers telling us how to generate passive income. And while many of these content creators are making money even when they’re not on time, fewer are talking about the work it takes to make it happen.

“A lot of people are surprised at how much work it takes because I think a lot of people who earn passive income say how great it is to have earned that,” says Pat Flynn, an entrepreneur based in California and creator of the “Smart Passive Income” podcast. “But they don’t necessarily tell you the whole truth. You see the tip of the iceberg.

“Passive” income, in most cases, will not be created passively. Whatever the pursuit – investing in stocks to receive dividends, buying rental properties, earning advertising revenue from video channels – you will have to work from the start before you can start earning money while doing little or no job. And in many cases, you’ll also have to keep working to maintain that income.

Passive income has no fixed definition

When does a job or side hustle turn into passive income? It depends on how you define it.

There is no specific point where income becomes passive. For some it could be when no work or maintenance is required, or for others it could be when a minimal amount of work each week is required. And “minimum work” is also subjective.

“To me, passive income is really something that takes work to set up, but after that it takes very little work to maintain and sustain that stream of income,” says Joseph Hogue, Chartered Financial Analyst and Creator. from the Let’s Talk Money YouTube channel.

Other sources of passive income include investing in peer-to-peer bonds or loans, generating advertising revenue from a blog, or putting your money in a high-yield savings account. Even the money an artist earns by listening to their songs on a streaming platform can be considered passive income.

If you want passive income, be prepared to work

Contrary to what the term passive income suggests, you have to work to achieve it.

Investing money you inherited or won in a lottery may be the only way to achieve truly passive income from start to finish. But for most of us, creating this new source of income will involve investing money from more traditional means like a job, or investing our time to create an income source from scratch. .

Without a significant upfront financial investment, people often underestimate the “sweat equity” or time and energy needed upfront, says Jannese Torres-Rodriguez, a Florida-based entrepreneur and creator of the “Yo Quiero Dinero” podcast.

“That initial workload, how long it will take to get to a place where it’s passive, that’s what scares a lot of people and makes them think, ‘Oh, well, that’s obviously a scam because I just want to make a quick buck,” says Torres-Rodriguez.

For Torres-Rodriguez and Flynn, it took at least a year to see revenue from some of their current passive income streams. Both said it took consistent work over that time before they started seeing money coming from their blogs, including affiliate marketing, ad revenue, and sales courses, among other things. sources.

The amount of upfront work may depend on the income stream and what you want out of it. For example, if you earn income from property rentals, you can hire a person or company to do all the property management. This will take your income away from you, but spending your time on it will make the income more active than passive.

If you’re looking to earn passive income, keep in mind that it’s not guaranteed down the road, even if you put in the time. There is no promise that your investment, whether of time or money, will pay off. Inevitably, there is a risk.

Seeing or hearing about other people’s successes can trigger this fear of missing out on a good thing. But before trying to imitate them, think about travel. It’s not inaccessible, but it won’t happen overnight.

This article was written by NerdWallet and was originally published by The Associated Press.

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Colin Beresford writes for NerdWallet. Email: [email protected]

The article How passive is passive income? originally appeared on NerdWallet.

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