What is Passive Income?

Everyone at some point will be thinking of building a passive income so that they can quit their full-time day job and stay at home, enjoying the financial freedom the passive income brings them. Can passive income be received with zero efforts put in?

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I was having this conversation with a friend some time back about creating a passive income that can support our lifestyle and allowing us to quit our full-time day job. While the conversation was taking place, I was thinking to myself, is our understanding of Passive Income the same? What IS passive income?

Most of us, I believe, understands passive income as a recurring income that we can receive without any efforts, except for the initial efforts, put into it.

Found this explanation on passive income online:

Passive income is an income received on a regular basis, with little effort required to maintain it. It is closely related to the concept of “unearned income“.

Source: Passive Income – Wikipedia, the free encyclopedia


Is There Free Lunch?

Let me draw your attention to a few words in the above-mentioned quote, “with little effort required to maintain it“.

As much as we would hope that income will come on a regular basis with no efforts required, there ain’t no such thing as a free lunch. Little efforts is definitely required to generate the passive income we all yearn for.

Let me quote you a few examples of what we can do to generate the passive income.

  • Income from real estate rental. Some would say renting out of residential or commercial properties can be a great way of generating passive income that needs no efforts. Is that really true? To rent out properties, you would require the initial efforts to search for a property to buy and a recurring effort to find tenants to rent your property and also to maintain the property for rental.
  • Income from trading/investments. Well, for trading, one have to consistently trade to earn the income, thus efforts will have to be put in to generate the income. Investments also needs consistent efforts to ensure that the investments you already made is still worth investing in, else you have to quickly pull out your investments. Finding new investments also takes time isn’t it?
  • Income from selling products online. To sell products, you will have to ensure your inventory is healthy and also have new products to sell so that buyers will come back  to you again. Time and effort is required to ensure that your online business can continue running.

Passive Income is NOT Fast Food

There are people who thinks passive income is a quick-and-easy process. Passive income is a journey, a journey that requires constant efforts to be put in. If you put in hard work throughout the journey, you will eventually be rewarded.

Take for example in shares investing, effort is required to study the company’s annual financial statements and read up news about the company you are invested in so as to be able to make informed decisions if the company is worth investing in.

All these takes time, time to understand the financial statements to sense make and capture if the financial statements will flag out something amiss. Time to follow the news of the companies you are invested in to see if the company is operating in the “right” direction.

The Bottom Line

Instead of hoping to find a passive income with no efforts required, why not try to find one which uses minimal efforts but yet able to help generate a passive income that is substantial for your goal of attaining financial freedom.

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