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Why Passive Income is Important

What is passive income?

Passive income refers to a stream of income that can be earned by an individual regularly without putting in much ongoing effort into earning it. This is directly opposite to active income, which is what is earned by an individual by working a job.

What activities constitute passive income?

The following are some examples of passive income streams:

  • Rental income from real estate
  • Book royalties
  • Stock photography royalties
  • Stock dividends
  • Index funds
  • Peer to peer lending

These different activities can be primarily categorized into:

  • Cash flow from property income
  • Income from royalties where the licensee pays the licensor to use their intellectual property
  • Business related or trade activities of a firm in which an individual has invested without participating in any business operations

Why is passive income important?

“If you don’t find a way to make money while you sleep, you will work until you die.” – Warren Buffett

This powerful quote conveys juts how important it is to have a passive income stream operating in your life. Majority of the population today works to earn a living and passive income is a game changer for the way people live and work. It’s important for the following reasons:

  • You’ll have more free time

The one true equalizer in this world is time because everyone has the same amount of it – 24 hours in a day. It’s difficult to engage in every activity you’ve always wanted to do with such a limit. If you’re working a 9 to 5 job trying to make ends meet, you aren’t going to find a lot of free time to do the things you love. Having passive income streams will free you up to be able to enjoy life a lot more and give you time to do what you love.

  • You can pursue your passion

One advantage of having more free time on your hands while still making money through passive income streams is that you can pursue your passion even if it doesn’t pay a lot. You’ll be able to volunteer at shelters to do work you loved but passed on because it paid too little.

  • You’ll be less stressed out about the future

Worrying about your financial future is normal. Being unsure about your job security or whether you’ll be able to cover your expenses in the long run can make you anxious and fearful, leading to several changes in your physical and psychological health. With passive income, you’re assured of a revenue stream and don’t need to stress out about your financial future.

  • You’ll get to live and work from anywhere

When your passive income exceeds your expenses and you no longer have to fret about making ends meet, you’re not bound to a 9 to 5 job where you answer to your boss. You can be your own boss and travel around the world, working from anywhere you want and exploring different destinations.

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