Passive income offers many benefits compared to active income. Some benefits of passive income include lifted income limits, less commuting to work, more free time for hobbies and family, personal growth, ability to pursue personal passions, lack of company politics, more free time and in some cases better tax breaks compared to active income.
Creating a passive income stream can be done in a variety of was. We have over 50 passive income ideas on our site. But if you aren’t yet convinced by the benefits of passive income, read on.
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1. Lifted Income Limits
Active income is money made by trading it for time. So, if you have an active job where you need to be physically present to make money based on an hourly salary, you are making active income.
When you make active income, you are limited to the salary you are allotted per year. The amount you make is usually decided when you are hired, by mutual decision or by your boss. Sure, you could negotiate an increase in your salary in the future. But, you can only work so many hours per day. If you are sick or take a few days off, this time will likely go unpaid. If you take a vacation, it may not be paid either. You may even have a limited number of vacation days you can take in the year.
Whereas, if you make passive income, you do not have to be physically present to get paid. You can make money at any time of day and night. And since you do not have to be physically present, limits are lifted on the amount of income you can make.
Keep in mind, how much passive income you make depends in part on your motivation, dedication, skill, execution, mindset and personal investment in building your dream. How much you make will also depend on how passive, expensive, difficult, time consuming, risky, seasonal and scalable the passive income source you are building is.
2. More Free Time
When you work a 9-5 job, you have to be physically present at work. You need to put in a certain number of hours per week. However, passive income allows you to be separate your time from your income source.
Let’s take a blog for example. It can take months and years to build a successful passive income blog, but if it generates enough traffic and is well monetized, it could passively generate thousands of Dollars of income for many months to come. For example, in Project 24, members are taught how to make a successful passive income blog that could generate a full time income in 24 months.
It does take a lot of initial hard work to build a passive income stream, but you are no longer tied to trading time for money. This can allow much more time for a balanced lifestyle where you can spend time with your family or on leisure whenever you decide to do so.
3. Ability to be Location Independent
Once they are rolling, many passive income streams do not require you to be physically present in a specific place to maintain them. They therefore can be managed from anywhere in the world, remotely online. Some examples of passive income streams that can allow you to be location independent are blogging, YouTubing, affiliate marketing, gaming, dropshipping and more.
A new wave of digital nomads and remote workers has taken off over the last decade and is continually growing. According to IWG, 70% of people globally work remotely at least once a week. Some of the most popular destinations for digital nomads include Bali, Lisbon, Berlin, Playa del Carmen, Las Palmas, Mexico City and Cape Town (source).
There are hundreds of passive income sources that allow you to work or live anywhere. If you are looking for inspiration, check out this list of jobs you can do from home, or anywhere else in the world in our list of online passive income ideas.
4. Better Tax Breaks
This does depend on your country or specific location and the company you work for, but in some places, taxes are higher for employees than for sole proprietors. Some sole proprietors are not subject to the 21% corporate tax rate, double taxation and are eligible for tax deductions (source).
Also, as a sole proprietor, you can write some of your business expenses off in your personal taxes. For example your office space, computer, and other work-related expenses. Have a talk with a qualified accountant / CPA in your jurisdiction to better understand the difference between the taxes you pay as an employee vs the taxes you would pay as a sole proprietor.
If there effectively are more advantages working for yourself with regards to taxes in your jurisdiction compared to working as an employee, “better tax breaks” can be added as a benefit to making passive income versus active income in your area as well.
5. New Form of Financial Stability
Most people have 9-5 jobs because they want stability and security in the form of a bi-weekly pay-check. But you could always lose your job because of changes in the company or layoffs. Passive income, if setup correctly, can provide financial stability in a new way.
However, not knowing if a passive income stream will succeed can be intimidating. There is always risk involved, and the risk your passive income idea never comes to fruition is very real. To counter that, many people start their passive income streams while they are still in the financial comfort of their current 9-5. This is a great way to take time to build a passive income stream to the level of comfort you are willing to leave your job for, before throwing in the towel.
Having multiple streams of passive that are diversified is an excellent way to add more security and try to protect yourself in case one stream fails. You can learn more about creating multiple passive income streams in this article on our site.
6. Less Work-Related Stress
Knowing that you are making enough income to cover your expenses and more, without having to produce it by spending time at a job can reduce stress, anxiety and fear for the future. However, actually creating your first passive income sources may be stressful.
Creating a profitable passive income source will take time, sometimes months or years. But, once you have your streams rolling and you are producing more than enough income to sustain yourself and you family, some work-related stress and anxiety may reduce or disappear.
But those who have the Sunday blues may find those feelings replaced with joy and excitement to continue pursuing their passion passive income projects on Monday.
7. Vacations at Your Leisure
Unlike most developed countries, the US does not have regulations on the minimum number of days off for employees (source). 54% of American do not even use the time off that they earn according to Project Time Off. However, not taking vacations or time off can have harsh effects on your health with regards to stress, anxiety, obesity and heart disease (source).
Unless you have a flexible schedule and a compassionate boss, you can’t take time off or go on vacation whenever you want when you are working for Corporate America. However, many passive income streams can be carried out anywhere in the world thanks to the internet. And if you are sick one day you could still make income.
8. No Getting Fired or Laid Off
Although most people work 9-5 jobs because of “job security”, they could still get fired or laid off. Whereas, if your main income is produced by your own passive income sources, you can’t lose your job. Of course, there are other risks associated with passive income sources. However, you have the power and control to quit or continue each venture you start.
When you work for a company, you have to dress a certain way, act a certain way, and comply to company culture. If they did a good job during the hiring process, then you should fit with the company culture. But it’s not always the case. When you have your own sustainable passive income sources and finally quit the 9-5 you no longer have to deal with company politics.
9. Work on Your Passions & Hobbies
According to Gallup’s World Poll, 70% of American workers are not engaged at work (source). People are bored, or don’t like their work. By contrast, having your own passive income sources allows you to live from things you are passionate and enthusiastic about. If you love coding, graphic design, teaching or are interested in investing, there is a passive income source you can build.
For example, Ricky and Jim from Income School create niche sites on topics and hobbies they are passionate about or want to learn more about. They have made sites on snakes, campers, pontoon boats, shooting sports and photography. Still looking for passive income ideas? See over 50 passive income ideas here.
10. Create Your Own Retirement Plan
Most people feel trapped in their jobs because of “advantages” like health benefits and future pensions. Your parents may have had a “comfortable” pension, but it’s a known fact that pensions are disappearing, and are becoming an unsustainable system to rely on. And if you work for a company or the State, you may be obliged to retire at a certain age to get all the “benefits” you are hoping for.
Even if you are setting money aside right now, you need to take inflation rates into consideration as well as the average rate at which salaries increase. For most countries and regions, the inflation rate is higher than the rate at which salaries are increased (source). If your passive income sources provide you an income that is higher than your monthly expenses, you can save it for retirement, or re-invest it in another sustainable passive income source that will still provide you income long after you retire.
You may also be able to reduce some expenses and increase your purchasing power after leaving your day job. For example, you probably spend a lot of money on your 9-5 job. Between time and money on gas commuting to work, cafe-lattes and lunches with colleagues. Whereas, with sustainable passive income sources, you could work from home. Transforming active income to passive income could make it possible eliminate some of those expenses completely.
11. Pursue Your Dreams
Passive income can allow you to pursue your dreams. If you talk to your friends and family about their best memories in life, they probably won’t name an anecdote from work. They will probably tell you about a life-changing trip they took, or a special moment they shared with a family member. That’s what’s important in life. Not sitting behind a desk in a cubicle waiting for life to pass you by.
Nothing feels better than setting and achieving your own goals. When you are building passive income streams, you may have to work for yourself, set your own goals, constantly learn and work hard. It requires a lot of discipline and motivation, but the rewards are more than just financial. If you need help with staying on track, working with a coach or a passive income buddy (a friend who is also building passive income streams) could be a great way to stay focused.
12. Personal Growth
When you work for a company, the chances are you don’t have time to focus on personal growth. When you are building new passive income streams, you constantly have to update skills your skills and learn new things.
For example, if you are creating passive income streams related to the peer-to-peer economy, you will have to learn about new platforms. Building passive income streams entails a lot of learning – one of the best things life has to offer.
If your passive income sources are educational or entertaining things like books, videos, or music for example, then you are sharing your value with more people than just those immediately working with a company. The internet has made it very easy to be able to have a large audience of people all over the world to share your knowledge with. It’s a wonderful opportunity that can come with building passive income streams.
Passive income is important because it represents a form of financial freedom. Freedom from having to work for someone else, from having to commute to a job, from stress, and from being location-dependant. Passive income is freedom to choose, to set and achieve your own goals, to constantly learn, to do what you love, and pursue your dreams.
Related Questions
Can you live off passive income? You can live off of passive income if you create passive income streams that surpass your expenses. For example, if you make $60,000 per year in passive income but only spend $40,000 per year, you can live off your passive income and have $20,000 for taxes and to save.
Why is passive income important? Passive income is important because it provides the ability to separate yourself from getting paid based on the number of hours you can put in. It takes down income ceilings, provides the ability to be location-dependant for some, to constantly learn, to do what you love, and pursue your dreams.
Where Can I Learn More About Passive Income as a Beginner? Beginners Passive Income is a website that provides beginners with hundreds of passive income ideas and more information about what passive income is. Passive income takes time, hard work, motivation, perseverance, among other skill to succeed. We hope to inspire to push through.
