Passive income refers to money earned with minimal effort or active involvement after an initial investment of time, money, or resources. Unlike traditional income streams, such as wages from a job (active income), passive income doesn’t require continuous hands-on work to maintain. There are two main types of passive income:

Investment-based Passive Income: This includes earnings from dividends, interest, rental properties, and stock market investments. For example, investing in a dividend-paying stock means receiving periodic payments from that stock without further effort beyond the initial investment.

Business-based Passive Income: This comes from ventures where, once set up, the income flows with little additional input. Examples include online businesses, digital products, affiliate marketing, royalties from books, music, or software, and more. For instance, an author can continue to earn royalties from a book long after it is published.