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Online Business Terminology

What is Passive Income? A 101 Guide

  • November 10, 2020

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Last Modified: November 10, 2020
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What is passive income

You’ve no doubt heard the term before. It gets thrown around quite a bit these days in financial circles (so much so that the real meaning tends to get muffled). Let’s take a look at some ideas for creating passive income and aspects to the process that many often overlook.

Blake Miner

Blake Miner

Blake is a traveling social scientist (MSocSc) and entrepreneur who writes about the psychology of personal freedom, travel, and location independent business. He's the founder of Flâneur Life, an internet home for free range humans.
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Active income requires constant input of time and effort to generate money. It’s how most of us make our money.

Passive income on the other hand is basically everyone’s dream. Imagine not having to actively work to but still be able to get paid?

The trouble is that most passive income ideas that get thrown around aren’t actually sources of passive income—at least from the get go. 

In my experience, it takes lots of active effort in order to set up a new passive income source. 

It can require taking daily action for a period of time before it starts to bring a return. 

Take starting a blog, for example. 

It can create passive income, but that may take months or even years of consistent writing, creating, connecting and delivering value.  

Even real estate requires an active investment of time and management, at least in the early stages.

In reality, there are only a few true sources of passive income, and those typically become available as options once you already have a sizeable income or amount of savings. 

For example, to receive dividends requires a rather large cash investment. Business partnership earnings requires you to build or buy into a business.

Why Should You Build Passive Income?

I can think of several reasons why you might want to build passive income, but Warren Buffet said it best:

“If you don’t find a way to make money while you sleep, you will work until you die.” 

Reasons you might want to build passive income:

  1. You want to retire early.
  2. You want to fund world travels.
  3. You want to take a sabbatical.
  4. You want a safety net in case of an accident or injury.

Potential Passive Income Sources

I’ll call these potential passive income sources because they’re projects that will require an investment of some degree of sweat equity or time in order to become passive. 

In my opinion, the best way to create passive income and a growing asset is by investing in building (or buying) an online business.

You might consider:

  • Starting a blog
  • Creating an information product
  • Starting an ecommerce business
  • Launching a dropshipping website
  • Starting a productized service

Related: 7 Scaleable Online Business Models

No matter what your passions are, there is likely a way to create a form of passive income around it. 

Don’t have any ideas? These questions might help.

Or, feel free to leave a comment and I’d be happy to brainstorm ideas or next steps.

Filed Under: 
Online Business, Terminology

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