How to Make Passive Income & Why You Should

Making money for doing nothing — if it sounds too good to be true, it probably is. While the idea of passive income seems appealing, it’s important to note that at least a little bit of effort is required in your side hustle to see significant ROI.

As Warren Buffett once said, “If you don’t find a way to make money while you sleep, you will work until you die.” This is the true benefit of having a passive income stream. The money you make isn’t directly tied to how many hours you work, so after a little planning, you can sit back and watch the money roll in. It’s especially handy for those already putting in time and effort at their full-time jobs.

What is Passive Income?

Passive income is earnings derived from an enterprise in which a person is not actively involved. What that really means is that passive income is not tied to how many hours you work. In order to better understand what this means, take a look at the three different types of income:

• Passive: income from work in which a person is not actively involved
• Earned: income from paid work (also known as “active” income)
• Portfolio: income from investments, dividends, interest and capital gains

If you have a salaried or hourly job, you’re making earned income. This is probably the type of income that people are most familiar with. Passive income is a different model entirely because it allows a person to earn money without trading their time for money one-to-one.

There is no “correct” way to make money. Once you understand the different types of income, you can decide which aligns with your life goals with respect to work and money.

Is your interest peaked? This infographic from Lexington Law explains how much money and time you’ll need for earning different streams of passive income.