Passive Income
Definition
Money earned with minimal ongoing effort after the initial setup. Common sources include rental property income, dividend stocks, interest from savings, royalties, and online businesses. It's not truly 'passive' — most require upfront work or capital — but the ongoing effort is much less than a job.
Why It Matters
Passive income is the foundation of financial independence. When your passive income exceeds your expenses, work becomes optional. Building multiple passive income streams also reduces dependence on any single employer or income source.
Example
Own a rental property generating $1,500/month after expenses. Hold $200,000 in dividend stocks yielding 3% ($6,000/year or $500/month). High-yield savings of $50,000 at 4.5% ($2,250/year or $188/month). Total passive: ~$2,188/month.