What is passive income?
Passive income is one of the most “hot subjects” of the present moment and is also one of the most controversial.
Many people believe that passive income is getting money without doing anything, others think that something like this does not exist and the passive income is only a dream for the lazy people who do not want to work.
In reality, the concept of “passive income” exists and works for a long time, but must be defined and understood correctly, especially when compared with active income. Here’s how we can define:
– Active income is the gain you get from the work that you develop constantly, every day. If you interrupt this activity your gain will disappear.
– Passive income is the gain you get from an activity even if you do not perform it consistently, day by day. So if you interrupt this activity for a certain period, your gain will remain constant.
But, let’s see some definitions:
– according to Wikipedia: Passive income is income resulting from cash flow received on a regular basis, requiring minimal to no effort by the recipient to maintain it.
– according to Investopedia: Passive income represents earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not materially involved.
In short, a source of passive income is an investment (of money and/or time) that once made require little (or no) effort to maintain it. So, passive income is money you get from assets you have purchased (with money) or created (mostly by investing time).
On the other hand, a difference must be made between investment and saving. Savings generally does not involve risks (for example bank deposits are guaranteed for certain limits), when investing involves some degree of risk (lower or higher). Passive income streams means investments, so there are risks to take care of.
Are passive income streams 100% passive? Well … not really. Any investment depreciates over time unless it is tracked and adjusted. But if this tracking does not last more than 10-20 minutes a week, then we can speak of “passive income” stream.
It is important to understand that passive income is not money earned for doing nothing. Usually, creating a passive income stream, takes work and a significant investment. Generally, that investment breaks down into two distinct groups: an investment of (mostly) money or an investment of (mostly) time.
So, in short:
Active income – work for it every day.
Passive income – more work at first and then reap the rewards for a long time