What is Passive Income?

What is Passive Income?

2 min read

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Imagine your revenue is a lake. Your daily job is to add as much water as possible to the lake and, at the end of every month, some water will evaporate to cover your costs. You can decide how you want to spend your time:

You can choose to spend your day carrying buckets of water from the nearest sea and emptying them in your lake. Your volume will slowly increase and you'll know exactly how much water you're adding each month, but you'll have to do all the work by yourself. This is called active income. In real life, any activity where you're directly trading your time for money (e.g. an office job) produces an active income.

You can also spend your day digging the ground for natural fountains to connect to your lake. These additional streams of water are passive, meaning that once you've managed to connect them to your lake they'll add an unknown quantity of water each month without you doing anything else than maintaining the riverbed. This is called passive income. In real life, any activity where you do the work once and get repeatedly paid for maintaining that source (e.g. building a SaaS app) produces passive income.

Your best bet is to start by doing the manual work and adding as much water as you can. This'll hopefully bring more water in that out, and you'll start to have water savings, just in case something happens.

Once you have enough savings to survive a few months without doing any manual work, you can start trying to build passive streams. If you're very lucky, you might discover a waterfall and quit your daily job. If you're not, you'll probably at least manage to bring in some water and have to do less manual work than before. And, in the unlucky case you didn't manage to find any passive stream, you can just go back to the manual work like nothing happened, and maybe try again in a couple of months.

You might be tempted to jump ship before you have a safety cushion. Remember that finding & building a passive source of income requires patience, which at times is scarce. There isn’t a secret or magic path to reaching passive income, and it partly depends on starting the right thing at the right time. If you want to get started, I'd recommend you to do it in your free time instead of quitting your job. That way, you'll be ahead when you make the jump.

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