JUST HOW PASSIVE IS PASSIVE INCOME?

The opportunity to make money while we sleep is one few of us would turn down. And passive income, at face value, suggests we can do just that.

“A lot of people are surprised by how much work it takes because I think a lot of people who are earning a passive income are talking about how great it is having earned that,” says Pat Flynn, a Californiabased entrepreneur and creator of the “Smart Passive Income” podcast. “But they don’t necessarily tell you the whole truth. You’re seeing the tip of the iceberg.”

“Passive” income, in most cases, won’t be created passively. Whatever the pursuit — investing in stocks to receive dividends, buying rental properties, earning ad revenue on video channels — you’ll have to put in work upfront before you can start making money. And in many cases, you’ll have to keep doing work to maintain that income, too.

PASSIVE INCOME HAS NO SET DEFINITION

When does a job or side hustle turn into passive income? That depends on how you define it.

There is no clear-cut point where income turns passive. For some, it could be when no work or upkeep is required, or for others, it could be when a minimal amount of work each week is required. And “minimal work” is also subjective.

“Passive income, for me, is really something that you have to work to set up, but after that, it takes very minimal work to maintain and to keep that income stream coming,” says Joseph Hogue, a chartered financial analyst and creator of the YouTube channel Let’s Talk Money.

Other sources of passive income include investing in bonds or peer-to-peer lending, generating ad revenue from a blog, or putting your money in a high-yield savings account.

IF YOU WANT PASSIVE INCOME, BE READY TO WORK

Contrary to what the phrase passive income suggests, you need to put in work in order to attain it.

Investing money you inherited or won in a lottery may be the only path to truly passive income, start to finish. But for most of us, creating this new revenue stream will involve investing money made from more traditional means like a job, or investing our time building a source of income from the ground up.

Without a large initial financial investment, people often underestimate the “sweat equity” or time and energy required at the beginning.