Aside from working, we have many other ways to earn money. Putting our savings to use, managing assets we own, or even using our talent and skills can all be good ways of making "passive" income.
Sara has loved history since she was little. She even chose to become a teacher. A few months ago, she decided that she would go on holiday every year to a different country to see first-hand where things she teaches about took place.
But when she began to draw up a budget and plan her first trip, she quickly realized that she would need more money than she had anticipated and began to think of ways she could supplement her wages as a teacher.
Having explored various options, the concept of passive income caught her attention. Though passive income isn't something new, technological advancement has created numerous new ways for people to earn it.
What is passive income?
Passive income is money we can earn regularly without the same time or work commitment that earning active income (from a job) entails. Setting up a source of passive income does require some money and effort; but once it's up and running, you'll need to do little or nothing to keep it up.
Whatever our goal is, the benefits of earning passive income include making saving a more common practice, not depending on wages as our sole source of income, and buffering our finances from contingencies.
It helps our financial health. It is also something many people can earn in a number of ways.
The most common ways of earning passive income
Sara must look at a number of personal and professional factors to make the right choice that will help her achieve her financial goal: extra income for the trip she is planning.
Here are some things she could choose to do:
Passive income mistakes
A lot of myths and misinformation about passive income could ruin your chances of achieving financial goals or even cause you to give up.
It's a common misconception that results are immediate. You should set a reasonable, realistic time frame for earning income right from the start. Persistence is a key to success.
Another mistake is thinking that “passive" means not having to do anything at all. While this type of income does not require the same effort and commitment of a traditional job, it is very important — especially at the beginning — to do the legwork needed to make your project profitable.
Passive income does not mean easy money: writing an e-book, painting or recording a course calls for skills that not everyone has. The same goes for we investing in the financial products or buying a flat to rent out, which ccertainly require time and effort.
Do we need to declare passive income?
Most passive income qualifies as a business activity subject to taxation since it essentially comes from a service or the sale of virtual or physical goods in exchange for money. However, it may be tax-exempt or taxed based on how much you earn and how often under the laws of your country.
To learn more, this article (in Spanish) on the Tu Futuro Próximo website (Santander Consumer España's blog) talks about what financial freedom means and how you can achieve it through methods such as passive income.