Passive income: What is it and how to get started

Everyone’s dream is to have a continuous cash flow that comes in all the time without doing anything extra. This is not a fantasy but a financial concept called Passive Income, which many people may still be confused about how it works and how to access it. This article will clarify passive income in detail and present 8 practical ways anyone can do to generate this income.

What is Passive Income: a continuous income stream without effort

Passive Income refers to a flow of money that comes in regularly without the need for ongoing effort. Clear examples include renting out property to generate passive income from rental payments received periodically while tenants are there, or holding stocks that pay dividends, which are received periodically as long as you own the shares.

Fundamentally, passive income arises when we set assets to work for us, whether intangible assets like copyrights for photos, e-books, or music, or tangible assets like cash, stocks, or real estate. These assets generate continuous income without additional effort.

Understanding the differences among three types of income

Besides passive income, the world of finance also recognizes two other types of income: Active Income and Portfolio Income, which operate in different ways.

Active Income: Income from work

Active Income is generated when we put in effort, exert effort, spend time, and use skills to earn money. Examples include a regular job with a salary or temporary gigs like babysitting or cleaning. This type of income stops flowing if we stop working, meaning continuous effort is needed to maintain it.

Portfolio Income: Profits from trading

Portfolio Income is the profit made from buying and selling, such as capital gains from selling stocks or profits from managing investment portfolios. It can be repeated, but it is not truly passive income because it requires effort to monitor and manage the portfolio. However, some parts of portfolio income, like dividends from stock holdings, can be counted as passive income.

Passive Income: Income that requires no effort

Passive Income differs in that we do not need to work continuously; even if we do nothing, the income still flows in. It is an attractive option to generate income alongside active income without conflict.

Comparison table of income generation in all three forms

8 Practical ways to build passive income

1. Creating copyrighted works that can be sold repeatedly

Creative works such as books, music, design templates, or images can generate long-term income. With technology enabling repeated sales at no additional cost, many platforms offer this service, such as Adobe Stock and Shutterstock for photos, Amazon and Ookbee for e-books, and Canva for digital templates. YouTube and Facebook also pay royalties based on video views.

Pros

• No initial capital needed, just creative skills
• Wide variety of creations, from drawings to photography
• One-time effort can generate income for years

Cons

• Platforms deduct fees and commissions before paying creators
• Income may not be high if the work does not attract interest

2. Traditional fixed deposit

Depositing money in a bank fixed deposit is a classic way to generate passive income from interest. It’s straightforward: choose the term and bank, and upon maturity, the bank pays interest at the agreed rate.

Pros

• No effort required, just set and forget
• Guaranteed returns, calculable in advance
• Low risk due to institutional protection

Cons

• Requires a large amount of money for meaningful returns, as interest rates are low
• Interest rates can change based on policy, affecting returns
• 15% withholding tax applies

3. Fixed-rate bonds and debentures

Investing in bonds or debentures involves lending money to issuers, which pays regular interest (Coupon Rate) over the agreed period. The interest rate varies with the issuer’s risk; government bonds pay lower interest than high-risk corporate bonds.

Pros

• No management needed after purchase; just wait until maturity
• Steady, higher returns than fixed deposits
• Relatively low risk

Cons

• High initial investment required
• 15% withholding tax on interest
• Risk of issuer default

4. Endowment insurance with returns and coverage

Endowment insurance combines savings with insurance coverage. Premium payments accumulate principal and interest, with the insurer typically offering around 2-3% annual return, paid as a lump sum at the end of the contract.

Pros

• No effort needed; just wait for maturity
• Life insurance coverage included
• No 15% withholding tax like deposits

Cons

• Requires a substantial initial amount, though installments are possible
• Single payout at the end; not a continuous cash flow

5. Leasing property assets

If you own a residence, condo, or vacant commercial space, leasing it out is a good option. It not only creates passive income from rent but also benefits from long-term appreciation of the property value.

Pros

• Immediate income from rent from the first month
• Asset appreciates over time
• Generates income even when the property is vacant

Cons

• High initial capital needed to purchase property
• Income depends on tenants; if vacant, no income
• Maintenance and repair costs

6. Investing in REITs for real estate exposure

REIT (Real Estate Investment Trust) allows ordinary investors to access real estate without large capital. REITs earn rental income from properties like offices, hotels, or infrastructure, and distribute dividends to unit holders.

Pros

• Low initial investment, similar to buying stocks
• Many options, including inaccessible properties due to restrictions
• Easy to buy and sell like stocks

Cons

• 10% withholding tax on dividends
• Unit prices can fluctuate with the market

( 7. Buying dividend stocks that pay regularly

Besides waiting for stock prices to rise )Portfolio Income###, some stocks called Dividend Stocks pay high and consistent dividends. These are usually established companies with steady profits, capable of generating 6-8% passive income annually, depending on purchase price and dividend payout.

Pros

• Generates income quickly while stock value may also increase
• Attractive returns compared to savings or bonds
• High liquidity; easy to buy and sell in stock markets

Cons

• Stock prices can decline during market downturns
• 10% withholding tax on dividends

( 8. Staking cryptocurrencies for high returns

For holders of cryptocurrencies, staking offers a new way to generate passive income by locking coins into staking pools, which can yield from 3-5% up to dozens of percent, depending on the pool.

Pros

• Very high returns compared to other options
• Easy to buy and sell on platforms
• Can generate income alongside Portfolio Income

Cons

• Very risky; potential loss of principal
• Tax regulations are still unclear
• Not suitable for inexperienced investors lacking understanding

Summary: Choose the right path to build passive income

Building passive income is a key strategy to achieve financial goals faster than relying solely on active income. Today’s world offers many opportunities, from no capital needed to high-level investments.

There is no one-size-fits-all formula; each person has different limitations and potentials. The important thing is to select a passive income source suitable for your situation, then plan and consistently act to let money flow in without effort.