Passive Income

What is passive income?
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Passive income is income that requires little to no effort to earn and maintain. It is called progressive passive income when the earner expends little effort to grow the income. Examples of passive income include rental income and any business activities in which the earner does not materially participate. Source: Wikipedia

Like other forms of income, passive income is taxable and you should check how it is treated in your state or country.

Examples of passive income include:
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1. Investment Income (e.g. money from property rents or capital growth and shares)
2. Business income (e.g. owning a business that has a manager and you earn the profits, an online business where you are earning commissions from referring products, creating YouTube videos and earning money from the number of views or publishing a book and earning income from book sales) ​

Why is passive income good?
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The majority of people earn an income by working for someone else or a company and receive salary income. This means you only earn income for the work you do, it is reliant on you to be there and do the job. Similarly, even those that have their own business, if earning income is reliant on you being there and doing the job then this is not passive income.

Whilst there is nothing wrong with earning income this way and generally the bulk of your income is generated through this means, the downside of this is that you are usually working for someone else and have to follow their rules and processes, if you are working for yourself having the time to take holidays could be limited and if something awful happened and you were to get sick, your income would suffer as you couldn't work.

By taking out insurances, there are ways to protect this income if you want to pay for this protection, which is a good idea in most cases, though speak to a financial adviser about your own personal circumstances.

With passive income, whilst it is never completely work free, it is generating income when you are not actively participating or you having to be there to work. For example, if you publish a book, the sales can happen even while you sleep through Amazon or a book distributor or if you had an investment property, rent would come in (assuming you had the place rented) whether you are on holidays or not.

For us at Money Moppets, our goal is to have a mix of 3 types of income, salary income from our day jobs, investment income from shares and property and passive business income. We'd like to get to a stage where our passive income is a greater percentage than our salary income so we can spend more time with the family and live the life we choose.