Want to Understand the Definition of Passive Income And How to Create It? Read on!
Is creating passive income something you have heard about…or maybe thought about? Not exactly sure what it is or how to do it? Hoping to boost your income this year? In this article, we will answer all of your questions about generating passive income.
Welcome to this year’s creating passive income guide. Here we will give you all the information you need to start maximizing your earning potential this year through passive income, including:
- A passive income definition to help you understand how you can make money this way
- Passive income examples so you can see how creating passive income works in people’s lives
- A list of top ways to make a passive income this year no matter what skills you have
Once you understand the definition of passive income and the types of passive income streams that could be available to you, you will have a great foundation for making your own passive income this year.
What’s the Definition of Passive Income?
Before we go into passive income examples, types of passive income, or ways to make passive income, let’s be sure that we understand the passive income definition.
Active income is the money you make when you are actively involved in your job. For example, if you are an accountant, you make money when you do all the duties of your job. When you go home at the end of the day, you stop making money.
The definition of passive income is the opposite. The passive income definition is the money you can make even when you are not actively working.
Normally, you will have had to do initial work (like creating an ebook that you sell). But once you are done with that work, you can make money whether or not you are doing anything at that very moment.
When it comes to creating passive income, you will not be “materially involved” the entire time that you are making money.
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Passive Income Examples
Sometimes it is easier to understand the definition of passive income by looking at passive income examples. Here are some of the most common types of passive income in today’s world:
What is Passive Income?
- Rental properties
- Selling information (like ebooks or courses)
- Limited partnerships
- Affiliate marketing
- Peer-to-peer lending
- Monetized YouTube videos
As you can see from these passive income examples, creating passive income does not mean you never work a day in your life. You will have to work hard to set all of these things up and to keep them functioning.
But you can essentially earn money from these ways to make passive income even when you are on vacation or enjoying your weekend.
Here are a few hypothetical examples of passive income:
- As an avid music lover, you create an online course on classical music for retirees. They buy the course from a website you do not have to manage (links to that below!), and you pull in the money with each purchase
- You finally move into your dream home but realize your starter home is in a perfect location for renters. You have a young couple sign a one-year lease, and you make money off their rent as you continue to build equity in that home.
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Reasons to Earn Passive Income
Most people think the only way to earn more money is to get a better job, a promotion, or a raise. However, adding an extra stream of income can be another (and sometimes even better) option.
But since most people do not have much extra time in their schedule, knowing ways to make passive income allows them to make extra money while not cutting into their jobs or family life.
Here are some of the top reasons to try creating passive income at all:
- Earn more money without spending too much time on a second job
- Earn money through a passion project that does not make enough to pay all your bills but that can make a fun passive income stream
- Gain some work/life balance as you earn money, even while taking a vacation or taking the week off
Now let’s talk about ways to make it happen.
Top Ways to Make Passive Income This Year
Now that you have the passive income definition and have seen passive income examples, are you thinking that creating passive income streams may be right for you?
If so, we are here to help. First, start by thinking of things in your life that you can transform into options for generating passive income.
For example, perhaps you make some sort of made-to-order craft or art piece that people pay you for. If you can add a pre-made option with a streamlined delivery service, you’ve just turned your active income into passive income.
If you do not have any activities like this in your life right now, do not fret. We have a list of four of the top ways to make passive income.
Of course, there are countless other options available to you. But these are great ways to make passive income that just about anybody can do with little-to-no specialized education necessary.
1. Sell an Ebook or Course
One of the best methods of creating passive income is through selling your knowledge. Everybody knows something about something. Whether it is in physics, knitting, vegan cooking, or gardening, your knowledge can start generating passive income.
In fact, this is one of the most common and easiest types of passive income to start with.
If you put your knowledge into an ebook or a course, you will have some initial heavy-duty work to do. Fortunately, there are services that can help you if you are interested in these ways to make passive income.
How to Make Passive Income
These services will not only help you create these items to sell as passive income, but they can also help you sell them. They include:
But once you have created a product and have found a way to sell that product (most of these services have an option for selling if you do not want to manage your own eCommerce website), you can sell your product any day and any time as passive income.
2. Rent Your Property
Property rentals have been one of the #1 sources of creating passive income for years. Unless you simply want to rent out a property you already own and maintain, there will be some initial work before you start generating passive income:
- Buy a property
- Fix/rebuild/spruce up that property
Once you have the property ready for rental, all you have to do is find renters and manage any issues that arise (like broken pipes or late rent) as you are creating passive income.
If you choose property rental as one of your ways to make passive income, there are some things to keep in mind to make the most of it:
- If your property is ideal for vacationers (close the beach/downtown), consider short-term rental passive income through convenient websites like Airbnb or VRBO
- If you do not have an extra house but do have a spare bedroom, also consider short-term rental passive income through convenient websites like Airbnb or VRBO
- If you want to rent to families, consider conditions conducive to their needs (near schools, nice carpet, big kitchen)
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3. Start Affiliate Marketing
Out of all the ways to make passive income mentioned in this guide, this method of creating passive income requires enough knowledge and skill to run your own blog or website.
Affiliate marketing to make passive income works like this:
- You recommend a product or service to your website/blog viewers
- They purchase that product through your code
- You get a commission
While you can work out an affiliate marketing deal with many different companies, there are some popular affiliate marketing centers to make the process of creating passive income easier.
If you use affiliate marketing for generating passive income, keep in mind that you will need to be honest about this. You will need to add some sort of affiliate disclaimer that lets your readers know you are using this marketing as a type of passive income.
4. Peer-To-Peer Lending
The last of our top ways to make passive income is not necessarily hard, but it does have a requirement: you have to have some money to spend up front.
Peer-to-peer lending is growing in popularity — not only as a way for creating passive income but also as a way to finance a new business. If you choose this method of passive income, you essentially become someone else’s bank.
You give somebody a loan and then start generating passive income through their interest payments. You benefit from the passive income; they benefit from a loan without all the necessary steps of approval at a bank.
Out of all the ways to make passive income, this method can arguably come with the most risk. There is always a chance that the borrower will not pay you back. Putting up safeguards can help make types of passive income like this work.
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Conclusion – Ways to Make Passive Income
You now have everything you need in order to start creating passive income this year:
- A passive income definition and clearer understanding
- Passive income examples to give you ideas
- A list of top ways to make passive income
Keep in mind that you are not limited to the types of passive income we have mentioned above. Any idea that you can come up with that allows you to make money with little to no effort (after the initial work) has the potential for generating passive income.
Get creative as you come up with ideas and specific ways to make passive income that could work for you this year.
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