Passive Income

Definition

Passive income is money earned with minimal active effort or direct involvement. Common sources include dividend-paying stocks, rental property income, bond interest, royalties from intellectual property, peer-to-peer lending returns, and income from businesses in which you are not materially participating. The IRS categorizes income as active (wages, salaries), passive (rental activities, limited partnerships), or portfolio (dividends, interest, capital gains). Building passive income streams is a key strategy for achieving financial independence. The "FIRE" (Financial Independence, Retire Early) movement emphasizes building enough passive income to cover living expenses. True passive income often requires significant upfront capital or effort to establish.