What Is Passive Income?

Posted by Fitz Villafuerte under Life Lessons, Mindsetting on December 2, 2007

How much are you earning while you’re asleep?

If you’re like most people, then I’m sure it’s zero or very little. This is the reason why we go to work. We wake up everyday, dress up, go out into the world and use our skills and talents so we can earn the money to afford the things we need and spend on the things we want.

For several years, I thought that this was the only way to live. When I graduated from university, all I ever wanted was to find that perfect job. I searched and worked and jumped from one company to another.

Everything changed when I met a friend for coffee one afternoon. I mentioned to him that I was contemplating on joining another company by next year because I heard that it pays good there.

He showed a lack of enthusiasm towards my plan and said that I should instead learn how invest. He then introduced me to the different types of income and the importance of having passive income.

The Different Types of Income

In a broad sense, there are three types of income which a person can generate: earned, portfolio and passive. Any money which go into our pockets can generally be categorized under one of these three.

Active or earned income is defined as money that comes from working. Your salary as an employee is the best example. Activities such as gambling, running your own business and professional consultancy work are also considered earned income. If it needs you physically, then it is active or earned income.

Portfolio income is also called capital gains. It is basically the income you get from selling something for a higher price than which you bought it. Investing in the stock market is the most common example of this. Aside from trading paper assets and other investments which appreciate in value, one can also gain portfolio income from buying assets at bargain prices and selling them at market value.

Passive income is money you get from investments you have purchased or created. If you own a business which can operate by itself, then that can be considered passive income. The major difference of this type of income from the other two is that it generates cashflow with zero or very little effort coming from you. Owning an apartment and having it rented, getting money from royalties for an intellectual property or income from multi-level marketing investments are good examples of this type.


How important is passive income?

The amount of money we get from earned and portfolio income are dependent on our physical presence, skills, talents and knowledge. If we get sick, become inefficient or if the things we know become obsolete, then our earnings will stop or decrease.

However, passive income can continuously generate cashflow independent of our human limitations. It can financially provide for you and the next generations of your family.

The good news is that all of us have the power to create unlimited streams of passive income. It is just a matter of patience, perseverance and passion. It is the key to long-term wealth.

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Photo courtesy of SXC



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16 Responses to “What Is Passive Income?”

  1. […] few days after that life-changing conversation with my friend. I realized that If I wanted to leave the corporate world, not only must I learn how […]

  2. […] If you are serious enough and is able to build a large collection, this can be a good source of passive income. Your image is royalty free, which means one photo can be bought several times by different […]

  3. […] Personal finance is not rocket science. How many times have your heard how some of the richest and most successful people on earth are actually school dropouts? Academic excellence helps but it is not a requirement to be rich. Moreover, I believe that hard work alone cannot make you wealthy. You also need to work smart and make your money work for you. Learn how to invest, leverage your resources and create passive income. […]

  4. […] that aside from your salary earnings, you should likewise create other cashflow streams such as portfolio and passive income. By doing so, you will not only have financial security, but more importantly setting yourself up […]

  5. icezorg says:

    I like your posts. Its nice see to a blog that I can relate to in terms of money.

  6. Fitz says:

    Thanks icezorg. ๐Ÿ˜€

  7. Hi. Thanks for this article. Speaking of incomes, I have tried joining MLM companies before but now I don’t have any enthusiasm in joining these companies anymore because when people hear about MLM nowadays, they have a negative connotation about it. Have you featured anything about MLM in your blog? If you were to join an MLM company which company would you join?

    Thanks and more power to your blog.

  8. Fitz says:

    Yes, I’ve written about MLM here already. You can follow this link:
    The Basics of Multi-level Marketing

  9. […] perseverance to someday join the ranks of Jehzlau, Dexter, SELaplana and Marhgil when it comes to passively making money […]

  10. […] a business This is the path that I’ve chosen. My reason for taking this road is simple – passive income. By building a successful self-sustaining business, I’ve come to enjoy more time freedom to […]

  11. […] Surprisingly, he showed little enthusiasm towards my plan and instead told me something that changed my life forever. In the next few minutes, he talked to me about investing and the concept of passive income. […]

  12. […] such as eBooks, then your blog can turn into a 24-hour online vending machine and you can literally make money while sleeping. Alternatively, a brick and mortar business can likewise create an online presence through a […]

  13. Ronnie says:

    Hi everyone,

    Speaking of passive income, if you’re interested in playing a round of Cashflow 101, just text/call me @ 0918-9351715. We can get together, organize cashflow 101 clubs and promote financial literacy at a different level.


  14. […] a business that can run on its own and earning passive income allows me to do things that I love and spend more time with both family and […]

  15. […] Many of us, if not all, wants to make money while sleeping – to earn passive income. […]

  16. SBG Vmobile says:

    So true; we make our own destiny thus to invest properly needs to be in route for passive income. I think passive income is easy if u have half a brain and will-power.

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