What is passive income and why should you generate it?

In this article, I am going to explain to you what is passive income and I’m going to try to convince you that you need to start seeing how to generate it right now.

What is passive income?

The most formal definition is the one that says that passive income is the income you receive from work you have already done. In other words, it’s doing something once and getting paid infinitely for it.

A clear case of passive income is copyright. For example, a musician composes a song that is a hit and lasts beyond the ages. Every person who wants to play or perform it must pay that musician.

Writing a book is also another way to generate passive income. If the book is good, then it will be sold and always available for someone to buy.

However, these are just examples and I’m not talking about passive income in the digital age.

The definition that I like

When a friend asks me what passive income is, I like to say the following phrase:

Passive income consists of all the money I earn while I am sleeping.

I prefer that phrase because it seems more forceful to me. I am sleeping (or doing any other activity) but I still make money. Little, perhaps, but money nonetheless.

In the digital age, anyone can generate passive income. To be able to do it you need an idea, hard work, and a lot of patience. Rome wasn’t built in a single day and neither was your passive income structure.

Why generate passive income

The main reason for generating passive income is obvious. The idea is not to work and earn money… But not for not working on oneself, but for the fact that your time has a price and the day only has 24 hours.

I’m going to explain it another way so you understand it better.

If you charge 100 monetary units (pesos, dollars, euros, candy, or whatever you want) per hour, in one day you can work at most 9 hours. Which is equivalent to 900 units. Suppose you try harder and work more hours to get more money, you can reach 12 hours and reach about 1200 units.

You could keep trying harder to make more money, but the day has a maximum of 24 hours and you need to eat, sleep, and rest.

Therefore, whether you are a freelancer or work in a dependency relationship, your ability to generate money by working has a limit.

The alternatives you have left are to raise the price per hour, something that is often not in your hands or that can be risky because you could be going far above what the market dictates.

The other is to develop a passive income structure that provides you with a fixed income per day (or per week or month). A little mattress of money that you can lean on and that you can always count on.

Of course, you can also invest money, but that already has a monetary risk. I’m not going to get into that topic anyway since this site is not about financial investments.

The idea of all this is that extra income is generated from something you have done once and that it continues to give you money while you work on something else. That is, you are not going to stop working because you have passive income. You are going to continue working on something else, knowing that you have an extra income already assured.

How to create passive income

What you probably want to know is how to create passive income. Well, I already explained the formula to you. You have to look for something that will give you money while you are sleeping.

Yes, I know. Thinking about an activity that generates passive income is complicated. Luckily some well-known themes work. They are the following:

Create a blog that is monetized with advertising and affiliate marketing (recommending products or services). The key here is to generate good content that the public wants to consume.
Create a YouTube channel and monetize it. This is in fashion right now and some people have become rich. The disadvantage is that to compete with other YouTubers you must have a significant level of production, in addition to generating good content.
Write a book and sell it online. In this case, it is important to have something clear to convey about a particular topic. You have to dump the information in an orderly manner and give it the format of a book. You also have to know how to promote it.
Create an online course. If you know about something and are good at explaining, then you can create a course on some educational platform like Udemy or Tutellus and expect people to buy it.

Generate passive income without obsessing.

At the time of writing, passive income represents a portion of my income. I am not obsessed with passive income covering all my expenses. I consider them simply a good complement.

Little by little, like an ant, I work so that they expand and so that in a couple of years they cover my expenses even more.

If you are starting down this path you have to have a lot of patience and understand that you are not going to achieve it overnight. It took me about 5 years to have a minimum structure that covers part of my expenses.

But… not everything is so simple.

Something else that needs to be clarified is that it is not always working only once to generate income. Sometimes it works, but in most cases, you’re going to have to work at least a little to keep whatever you sell up to date.

If it is a course, you will have to update it to new trends, ideas, and technologies. If it is a book or a blog, you should see that it does not become obsolete over time.

You must also consider that you are not alone on this path. Many other people will compete against you trying to keep the audience that generates passive income. That’s good because it forces you to try harder and be more creative. But it is also true that it makes it more difficult for you.