Explanation:
Passive income is often described as earning money while you sleep. It’s the result of investments or efforts that generate ongoing returns without requiring constant active involvement. While initial setup may take time or capital, passive income streams can lead to financial independence.
Example:
Alex purchases a small rental property with a $10,000 down payment and a mortgage. After covering expenses, Alex earns $300 per month in rental income. Over time, as the mortgage is paid down and property values increase, Alex’s passive income grows.
Real-life Application:
Dividend Stocks: Invest in companies that pay regular dividends to shareholders, offering a steady income stream.
Create and Sell Digital Products: Develop courses, eBooks, or design templates to sell on platforms like Gumroad or Udemy.
Real Estate: Purchase rental properties or invest in REITs (Real Estate Investment Trusts) to earn passive income from real estate markets.
Peer-to-Peer Lending: Use platforms like LendingClub to loan money and earn interest over time.
Automated Businesses: Build businesses like affiliate marketing websites or print-on-demand stores that generate revenue with minimal day-to-day management.
Reinvest Earnings: Use the income to fund additional investments, creating a compounding effect for greater financial growth.