Passive Income

The idea is that the money arrives whether or not you are actively working that day. Typical examples include interest on savings, dividends from shares, rent from a property, royalties from a book or song, and income from a business you own but do not run day to day.

Passive income is rarely effortless. It usually needs either money, such as savings used to buy shares or property, or a large amount of work up front, such as writing a book or building an online course. Many sources also need some ongoing attention: rental property needs repairs and tenants, and investments need to be monitored.

The amount of passive income depends on the size of the asset and its yield. If you hold 20,000 in investments that pay out 4% a year, you receive about 800 a year. To receive 20,000 a year at the same 4%, you would need about 500,000 invested.

Passive income is not guaranteed. Tenants can leave, companies can cut dividends and interest rates can fall. It is also usually taxable. Its appeal is that it can supplement earned income and, if it grows large enough, eventually replace it.