Passive income (also known as residual or recurring income) is commonly used to refer to income that continues to be earned even after the work is done. Passive income is earned by creating or acquiring an asset that continues to pay of profits regardless of if there is still active work being done to the asset. Passive income may be treated differently by the Internal Revenue Service for tax purposes.

By contrast, active income is earned as a direct result of our work meaning input is correlated to output. Active income is commonly earned in the form of wages and salaries.

Passive Income Examples

A few examples of ways to earn passive income:

  • Royalties from the sale of a book or song
  • Income from the ownership of a real estate investment property
  • Proceeds from renting a spare room on AirBnB
  • Investing in loans through a platform like Lending Club ot Prosper
  • Dividends earned from owning stock in a company
  • Stock photography royalties

Related Terms

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