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Passive income: Explained

Imagine you’re sitting on the couch watching Netflix while making money. Sounds unrealistic, yeah? But this is not far from reality – you can make some money without exerting much effort, and that’s my friend what we call passive income.

What is passive income? 

Passive income is a regular stream of money that requires little or no continuous effort. The goal is to create a steady flow of cash without the daily commitment of a full-time job. Examples of this income include; returns from investments, rent from real estate properties, revenues from a YouTube video, etc.

Passive vs. active income

The key difference between passive and active income is the amount of effort required to earn and maintain it. Active income is like a chemistry quiz: to get the full mark, you need to study the periodic table by heart. Alike your job salary, you must be actively working to earn it. 

Passive income, on the other hand, is like a trusty sidekick who’s always there to support you. It’s generated from sources that require little to no maintenance, such as renting properties or investing. This means that once you have set up a passive income stream, you can earn money without actively working for it. Yet, it’s worth mentioning that sometimes it takes a lot of effort to create it (eg: creating a YouTube video), but once it’s up and running, the effort to maintain is minimal. Yet, the two types are equally important. You should work toward having both active AND passive incomes. 

How can you create a source of passive income?

Usually, the first stage is considered the hardest as this is the time when you’ll be putting your time and effort into either creating the source of income or putting your money in different investments.

Option 1: Creating

Develop a revenue-generating product or service and put in the work upfront, then sit back and watch as it sells again and again, such as an e-book, an online course, or a YouTube video.

Option 2: Investing

One way to make passive income is to invest money in a business or property that generates income without requiring constant attention. For example, you could buy a property and collect rent payments from tenants or invest in a company that pays dividends on its stock.

The wrap-up 

If you’re a beginner, it’s vital to know that passive income can provide financial freedom and independence, but it’s not a get-rich-quick scheme. You need to put in the work upfront to create a steady flow of income. 

This information is for educational purposes only and is not a recommendation or a solicitation to invest. The value of investments can go up and down and involve risk. Thndr does not provide investment advice and individual investors should make their own decisions based on their research or seek independent advice. Thndr is the trading name of Thndr Securities Brokerage which is authorized and regulated by the Financial Regulatory Authority (FRA). Registered in Egypt (no. 804).