passive income
Earnings from a source in which one is not actively involved, such as rental income, dividends, or royalties.
Example
“Her rental properties generated $3,000 per month in passive income.”
Memory Tip
PASSIVE = not active. Passive income comes in while you're being passive — doing nothing.
Why It Matters
Passive income is crucial for building long-term wealth and financial independence because it allows you to earn money without trading your time for it. Understanding passive income sources helps you diversify your earnings and reduce reliance on a single job or active work.
Common Misconception
Many people mistakenly believe that passive income requires no effort at all and money flows in automatically. In reality, most passive income sources require significant upfront work or investment before they generate ongoing returns.
In Practice
A person invests 50,000 dollars in a rental property, then spends months renovating and listing it. After finding tenants, they receive 1,200 dollars monthly in rent with minimal effort, though they must handle occasional repairs and maintenance. This rental income is passive because they earned the 1,200 dollars without actively working that month.
Etymology
Passive (not active) + income — income you earn without actively working for it.
Common Misspellings
Build a budget and track your spending
Related Terms
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See Also
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