Passive Income: What is it, and why does it matter?

Passive Income: What is it, and why does it matter?

Saving money isn’t the only way of bettering your financial situation. In fact, you can only go so far with just saving – simply because there are many expenses that we can’t do without or reduce.

The alternative to cutting your expenses is, of course, increasing your income. The most common way to attain this is by picking extra shifts or getting an extra job – however, often this isn’t quite possible, and even more often not really healthy in the long term.

Luckily, there are other ways to increase your income that don’t require you to live under permanent stress or sleep only four hours a night due to long work hours. Specifically, I’m talking about passive income.

 

What is passive income?

 

Passive income is the name we give to the money we make each month that we don’t need to actively work for. It’s not free money, and it’s not like we don’t work for it – it’s just a type of income that doesn’t require us to work specific hours or shifts. You may also have seen this flagged as “supplemental income,” although not all passive income is supplemental – some people manage to make a living entirely out of it.

Now, you might not be able to make a living from passive income alone, and that’s fine. That’s why the term supplemental is often used too. Regardless of whether you’re making a lot or a little from it, every little bit helps in the end, and the amount of effort you need for a bit of passive income isn’t generally much.

 

Does this mean I have to invest money?

 

Investments are indeed one of the most common forms of passive income, for obvious reasons. Owning shares on a dividend-paying company or renting real estate returns money in exchange for little or no work.

However, those activities are out of reach for the vast majority of people – and if you’re struggling to make ends meet, chances are you don’t have the amount of money required for such an investment to begin with. So no, passive income doesn’t only come from investments. There are many activities that can bring you extra money in exchange for relatively little time.

 

Have you any examples of this?

 

Of course. Other than investments and real estate, the following economic activities are considered passive:

  • Teaching via courses. This can be done using an established e-learning platform, or via monetized videos and website content.
  • Renting a part of your house for travelers, if available. A spare room can easily be turned into an Airbnb, and some travelers will be content with just a couch.
  • Flipping products. Look for bargains on stores, particularly online retailers, and resell at a higher price. Flipping can take a while to become fruitful while you learn what’s better and what’s not, but soon enough it can deliver some supplemental income.
  • Cultivate a popular online presence, such as a blog, youtube channel, or even Instagram/tiktok profile. While easier said than done, there’s money for advertising to be made here, and depending on your line of work you might not even need to change your daily routine much.
  • Monetizing some of your hobbies, such as writing, can also become sources of passive income if you self-publish. If you’re into crafting, opening an etsy store will only take a couple hours, and you can use it to sell things you’ve already made while adding new things as you make them.

 

Should I do all of these? Which one should I go for?

 

While there’s no limit on how many passive income activities you might have, nor there is a recommended amount, naturally trying to go for all of them probably won’t work too well.

Most of these activities won’t take too much time each day, but they will add up. Also, when trying to find success in a field it’s often better to focus on a specific one than to spread yourself thin trying to do all of them at the same time – once again, the fact that these activities don’t take a lot of time doesn’t mean you’ll have time for them all.

The recommendation, then, is to find a passive income activity that fits you, your skills, and your hobbies. If you enjoy knitting, the etsy store is a good option. On the other hand, if you’re an extrovert you might find it easier to establish a tiktok persona to later monetize.

The trick here is finding that one niche you’ll feel comfortable with and can already fit into your life. Taking up a new hobby you might not be good at or enjoy for the sake of “passive income” isn’t  great idea, since it’ll take time and resources for you to learn and it all might be for naught.

Over the next few weeks we’ll be taking a deeper look at passive income activities and how we can maximize our chances of success with them. Meanwhile, do remember that passive income is about using resources or knowledge you already have to generate more income, and not about spending time and money on new things just in case you might find success with them.

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