What exactly is passive income and where does it come from?

As the name suggests the word passive means inactive or non-involved, therefore passive income is defined as an income that you earn for which a little or no effort is made from your side. This type of income is generated with very little work or active participation in the process of generating money.

“Passive Income is money that you earn without having to work for it. When you earn interest on a savings account, you are earning money passively; it accrues whether you’re working or not.” – J.D. Roth

The concept of passive income is almost magical to everyone who reads and understands it for the first time. It is indeed difficult to believe for an average working class person that they can earn real money by not regularly working for it. The realization of the concept of passive income does take time. One has to read, discuss, try something new, fail a couple of times, try again, taste small success and then move on to bigger victories which changes the whole outlook towards money, investing and income.

The way one generates passive income may differ from person to person but the objective remains the same i.e. generating regular income without having to work for it regularly.

The broad sources from which passive income can be generated are as follows:

Real Estate: This is one of the oldest forms of asset which we see in form of residential and commercial property like apartments, villas, plots, offices etc. The earning is through rental income, income from capital appreciation etc.

Financial & Paper Assets: This category includes paper or virtual money in form of bank accounts, stocks, funds, deposits etc. The income is through interest from bank deposits, dividend from stocks etc.

Metal & Commodities: This asset category includes precious metals like gold, silver, copper, nickle etc. Also natural resources like oil and gas. Owning and trading of this asset class is also an important part of passive income generation and path to riches.

Intellectual Property: This property emanates from the unique skills and knowledge that a person may possess like singing, writing, art, software/apps creation etc. Income is generated through royalties from books, music, software etc.

Entrepreneurship & Business: When you are a part of a business system that does not require your direct involvement passive income is generated. This may include you as an investor/partner or owner of a franchising retail concept etc.

Digital & Internet Assets: This medium promises to be the future of passive income generation for a large number of people. The opportunities are endless and every day new and creative ideas are being generated in this arena. The main sources of income under this are advertising, affiliate marketing, information products, ecommerce etc.

Each of the above sources of passive income require a deeper understanding on how each system works and produces results for an individual. It is also dependent on which area interests you the most and the subject that you want to dig deep into.

Investing and passive income creation is easier said than done. There is nothing like a get rich quick scheme that one can copy and paste and it requires a consistent effort and right attitude to create true financial freedom in life.  We need the relevant resources, articles, information and direction to achieve the goal of obtaining required knowledge that is helpful in generating passive income from some or all of the above sources and lead a life of financial freedom and success through intelligent investing.