Passive Income: Overview, Definition, And Importance

I used to have a colleague whose name was Evita. While we loved our jobs so much, the pay was moderate. 

I complained about my inability to pay some of my bills, but Evita lived primarily. She barely felt the burden that was almost leaving me worn out. 

One day, I asked her what the secret was, and she said side hustle. 

Side hustle? We both dedicate most of our time to working here; what time does she get to engage in it? Evita defined passive income and how she makes money through this medium. 

What does Passive Income mean? I was curious.

You may feel the same way I felt; the urge to make more money without stress. I have got you covered.

Trust me; this read will be more than an enlightening ride. In this article, Passive income will be defined, and we will delve into its intricacies. 

What Does Passive Income Mean

Earning money with little or no stress is best for passive income definition. Passive income is making cash that does not need over-demanding efforts. 

Passive income can be a side hustle, a great way to make extra cash flow. With this income stream, you can make more money while functioning in your primary job. 

Passive income is more financial security while requiring little or no effort.

This income stream involves making money that does not demand trading your time and money. Passive income makes you feel confident about your future and finance. 

Running an online service or any form of passive income assures you of a steady cash inflow. However, this depends on your ability to stay consistent. 

The flexibility of passive income is unlike active income. 

Let’s explore the contrast between the Active and Passive Income definitions. 

Check out: 15 Passive Income Ideas That’ll Make You Rich in 2022

Passive Income As Opposed To Active Income: What’s The Best Option?

As opposed to the passive income definition, active income requires time and effort. 

It may seem as though all income source carries similar weight. In regards to attaining financial freedom, passive income beats active income.

Active income is the finance one generates from active engagement in work. It requires actively working to continue making a living. Often it’s not flexible and is time-sapping.

It is not the type of money you make while sleeping. In a case where you sleep or worry less, you end up earning no money.

Then, there is the opposite of active income; passive income. Passive income is a payment that doesn’t need you to work at all times to make some cool cash. If you play your cards well, you will continue to have income inflow over time.

You have passive income for people who want a flexible work nature where you get to worry less about time. 

Earning an active income alongside a passive income means more financial freedom. 

You may be able to build a passive income stream with a small investment. You’re not making any less of a commitment than someone investing their time. 

To make an income that matches that of an active income earner requires a good amount of work upfront. This is why this source of income is best as a side hustle.

Understanding The Nitty-Gritty Of Passive Income 

What does passive income mean? The answer is to understand the definition of passive income and its intricacies. 

Aside from passive income, there are two other incomes: active income and portfolio income.

Different scenarios come to mind at the thought of passive income, for instance, a pregnant woman, a job seeker, a nursing mother, a stay home wife, etc. 

You may be any of this and still make cool cash. It is no challenge. So we can opine that passive income is a savior for anyone because it can help anyone make money.

Passive income can go alongside your primary career. If you can build up a solid stream of passive income, you can even make it a full-time job. 

Rental Property, Limited partnerships, or other business a person may not engage actively in is a source of passive income. 

The way passive income definition sounds, it may birth a conception that ‘you have to do nothing, but that isn’t true.

According to, All passive income needs one of the two.

  • An upfront monetary investment, or
  • An upfront time investment

Now we know, Passive income is not in every way about being verbatim passive. There is more to explore; let’s go ahead.

Read Also: 15 Passive Income Ideas That’ll Make You Rich in 2022

Types Of Passive Income

Passive income is defined as self-charged interest, rental properties, and businesses. In these businesses, the person receives payment but does not actively partake. There are specific IRS rules that determine if an income is passive.

Rental Properties

Rental properties passive income comes with a couple of exceptions. This involves dealing in real estate and rentals. So for a real estate professional, any rental income you make counts as passive income. 

Money from leasing land does not qualify if the property nets a loss during the tax year.

Create a blog or YouTube channel

The most outstanding jobs are the ones driven by passion. They are less weary and even more exciting. The good news is that you can make money while doing what you love to do.

Take your passion as a niche and turn it into a blog or a YouTube channel. You can make use of ads or sponsors to generate your income. You have to specialize in your niche and work hard to be an expert in it.

Aside from creating a youtube channel, you can also create a blog. The main thing is to have a subject matter and consistency. The more unique your voice or area of interest, the greater you become someone people will love to follow.

As time goes on, you can monetize your channel or blog. You can also attract sponsors.

Creating content requires time and passion. It may seem like it can not draw a profitable audience, but you won’t be sure of that until you experiment. 

Affiliate marketing

Affiliate marketing involves promoting a third party’s product. It involves including a link to the product on their site or social media account. Amazon may be the well-known affiliate partner; we still have; eBay, Awin and ShareASale, etc. 

Affiliate marketing also happens on social media platforms like Whatsapp and Facebook. You can also consider using an email list to draw attention or direct people to products and services.

You may be wondering, how does affiliate marketing work? You earn a commission when a visitor clicks on the link and makes a purchase. 


Sell photographs online

Do you know you can sell photographs online?

So if you are passionate about photography, you can monetize your passion. You can sell your pictures on Getty Images, Pixel, or Shutterstock.

To get started, you need approval from the platform, then get a photo license for anyone who downloads them. The platform then pays you every time someone uses your photo.

It would be best if you are artistic with your photos, know your audience and tell the right story. Images can be with models, landscapes, creative scenarios, or actual events.

Although you can sell the same image hundreds or thousands of times, you can still add photos to a platform and get no income. The key is to be consistent till you find the needle in the haystack.

It would be best to stay put as any photograph may be your winning ticket. 

Read Also: 15 Best Passive Income Ideas to Make Money While Sleeping in 2022

Sell Products Online

The world has gone digital. You do not need to have a physical encounter with a customer before you offer a sales service. With sales platforms such as eBay or Amazon, and sell products. 

Write an E-book

Writing an e-book can be a great source of passive income. You can take advantage of the low cost of publishing and even use Amazon to get your book seen by millions.

E-books can be short, 30-50 pages, and cheap to create since they rely on your experience. You’ll need to be an expert on a specific topic or special skills or abilities many readers need. 

What Does Passive Income Mean In Business?

Passive income definition in business is the same as it is in individuals. Passive income enables enterprises to build their wealth and improve cash flow. This leads to an increase in financial stability and security.

In essence, passive income increases profits and saves time and horizon. For some entrepreneurs, passive income allows for location control like remote workers.

Benefits of passive income as a business include less stress, time to pursue a passion, etc.

Let’s ride on to explore other benefits.

 Benefits Of Passive Income: Reasons For Passive Income

  • Improved Finacial Stability
  • Less Reliance On A Paycheck
  • Makes Goals More Achievable
  • Flexibility And Location Control
  • Stress Reduction
  • Stable Financial Consistency

Passive Income And Tax

Businesses, individuals, corporations, etc., need to pay tax. You must be wondering, Does the IRS tax passive income streams? 

Yes, passive income can be taxed. 

IRS tax passive income the same way they do for a full-time job. Sometimes this type of income pays tax at the same rate as an active income. It is possible to use deductions to reduce liability.

The amount of tax the IRS requires from passive income depends on several factors. These factors include the source and how much time you spend on the business.

For instance, a rental property pays in a different sum from a business or trade activities. 

Passive income has been defined; to know more about passive income and tax, you may need the counsel of a tax professional. 


Note, we are not of the conception that passive income definition is earning so easy! It would be best if you still put in the effort, even minor work or investments. 

Won’t advise anyone to ditch an active income. Yes, passive income can birth outstanding success but still comes with work.

In most cases, to earn money as much as an active income earner requires the same effort and even more. 

Many have made cool cash from passive income, but it did not happen overnight. Do not omit dedication, commitment, and discipline in your choice. 

Cheers to financial freedom.


What is the highest paying passive income?

Here are some money-making ideas
Invest. Investing is one of the most common ways to make income.
Crowdfund real estate. 
Own rental properties.
Buy bonds or CDs.
Publish e-books.
Build a niche affiliate website.
Create apps or software to sell. 
Sell stock photos.

What are three forms of passive income?

Create a course.
Write an e-book.
Rental income.
Affiliate marketing.
Flip retail products.
Sell photography online.
Buy crowdfunded real estate.
Peer-to-peer lending.

What are examples of passive income?

Here are some of the most common ways investors can earn.

Dividend stocks.
Dividend index funds and exchange-traded funds.
Bonds and bond index funds.
High-yield savings accounts.
Rental properties.
Peer-to-peer lending.
Private equity.

What are the seven sources of income?

7 Different Types of Income Streams
Active & Passive Income Streams.
Earned Income.
Profit Income.
Interest Income.
Dividend Income.
Rental Income.
Capital Gains Income

How can a beginner make passive income? 

A beginner can make income by investing in stocks or mutual funds. Beginners can also learn about real estate, renting properties, or starting affiliate marketing—the best high-paying strategy for beginner’s stock market investment.



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