Passive Income

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Definition of 'Passive Income'

Passive income is income that you earn without having to actively work for it. This can come from a variety of sources, such as rental income, interest income, or dividends. Passive income is often contrasted with active income, which is income that you earn from working for a salary or wage.

There are a number of benefits to having passive income. First, it can help you to achieve financial independence. If you have enough passive income, you can potentially quit your job and live off of your investments. Second, passive income can help you to diversify your income sources. This can make you less vulnerable to economic downturns. Third, passive income can give you more freedom and flexibility in your life. You don't have to work as many hours, and you can choose how you spend your time.

There are a number of ways to generate passive income. Some of the most common methods include:

* Rental income: You can buy a property and rent it out to tenants. This can generate a steady stream of income, as long as you have good tenants who pay their rent on time.
* Interest income: You can invest your money in interest-bearing accounts, such as savings accounts, CDs, or bonds. This can generate a small amount of income, but it can add up over time.
* Dividend income: You can invest in stocks that pay dividends. Dividends are a portion of a company's profits that are paid out to shareholders. Dividends can be a good way to generate passive income, but it's important to remember that stock prices can go up and down, so you may not always receive a dividend.
* Royalties: You can earn royalties from intellectual property, such as books, music, or patents. Royalties are a percentage of the sales of your intellectual property, and they can be a good way to generate passive income.

Passive income can be a great way to supplement your income and achieve financial independence. However, it's important to remember that there is no such thing as a free lunch. All investments carry some degree of risk, and there is no guarantee that you will make money. Before you invest in any passive income stream, be sure to do your research and understand the risks involved.

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