Passive income is a taxable revenue that you earn without actively working. This term loosely describes the various means of earning without needing a full-time job. It encompasses all money you make from investments, dividends, royalties, and other means. The IRS disagrees with the loose definition of passive income, so you should acquire a tax professional’s aid during tax season.
Your sources of passive income can come from anywhere. If you own your house and have an unused bedroom or apartment, you could turn that space into passive income by renting it out. Since it is not in use, advertise it on Airbnb, Facebook, or other marketplaces to attract renters. You can also dabble in peer-to-peer (P2P) lending if you have money saved on the side. P2P is a personal loan you offer to individuals in need via marketplaces like LendingClub or Upstart. Available platforms rate the customers as low- or high risk to help you decide where your money goes.
Pros and Cons to Passive Income
There is also no limit to how much you passively earn. You can build as many or as few streams of passive income as you desire and still see money steadily made for you. Your passive income is not limited based on the hours of the day, hours you worked, or whether you are sick. Once the passive streams of income are ready, the money will flow without needing your supervision. Money earned passively is made even while you sleep. Day and night, whether you are working or have the day off, you are generating revenue.
The most beloved benefit of passive income is the freedom you gain when having to answer only to yourself. You determine your work schedule, and if you choose to “call-in” when you want to build your passive streams of income, then you do so without guilt. The hours you work are your choice, and no one can interfere or be upset by your actions.
But there are certain shortcomings you must consider before dedicating time to start your passive income streams. The first is to accept that you will not build your passive streams in a night. It takes time and dedication to make a single stream, which means more time and effort to establish multiple. Though the benefits are worth every day spent on these projects, you must dedicate time to these projects. Your efforts to build your streams of passive income will be extremely active, so bear your day job while you work on the passive streams.
Another shortcoming is the necessity of growing multiple streams. It is fine to have one job as your active source of income because you can rely on its schedule and stability always to provide a paycheck. Your passive income will not be as steady as the 40 hours you worked that week. Depending on your sources, it will fluctuate based on the market. Building multiple sources cushions you when one or two streams become trickles for a time.