What is Passive Income? A Guide to the Reality of Passive Income %%page%%

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What is passive income?

Passive income refers to money you earn with little or no active effort. It comes from sources other than your full-time job, side hustle, or a contracted client (in the case of self-employment).

In any of those working relationships, youre expected to put in hours or churn out deliverables to get paid. In contrast, passive income doesnt require active labor. Its often thought of as extra cash you can make in your sleep.

Thats the typical mindset when it comes to passive income. However, the truth is that passive income is a modern money myth. Most passive income streams require careful preparation.

Even once theyre up and running, they require occasional attention, so they arent fully passive. One example is rental income, one of the most common passive income streams, according to the Internal Revenue Service (IRS).

Once a property is rented to a tenant, you dont have to do much beyond collecting rent. Hire a property manager or property management company, and you dont even have to worry about landlord tasks like building maintenance.

However, you first need to acquire a property, get it rental-ready, and keep it that way. That upfront prep work requires an initial investment of money and effort.

Ways to create passive income

Although totally passive income might be a myth, it can still be a practical and worthwhile way to increase your earnings. Here are a few passive income ideas you can use to start building your wealth.

Buy an asset that earns passive income

There are many assets that can generate income without regular input. Portfolio income from investing such as in dividend stocks in the stock market or mutual funds is one example. You can also invest in real estate investment trusts (REITs). 

You can also look into short-term forms of passive investment income. Peer-to-peer lending is one example. Online platforms connect you to people who need a loan, for example, to start their own business, allowing you to…

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