Can you live off passive income? (Here’s how)

Can you live off passive income?

Many people around the world are living off of their passive income. This means they no longer need to work to support their daily lives. You can generate passive income through many sources. With some calculations and dedication, you too can live off of this type of income. 

If you’re wondering, How can you live off passive income? This article is for you. Read on to find out what passive income is, the different ways you can generate it, and how much you need to stop working and start relaxing.

TFF22-030 - Can you live off passive income (Here's how)

This article may contain affiliate links which pay a commission and support this blog. Thank you for your support!

What Is Passive Income?

Passive income is money that you make with little or no work on your part. It’s often referred to as when you earn money in your sleep. This money is generated without the commitment of a full-time job.

Most of the time, passive income comes from:

  • Investments (e.g. dividends or stocks)
  • Properties (Rental, AirBnB)
  • Side hustles (Websites, Amazon FBA, etc)

Those who succeed in growing their passive income can eventually reach a point where they are financially supported. This means they have the freedom to stop working entirely by retiring early or to continue to work for extra cash that they can spend at their discretion.

Most passive income is not created overnight. Getting started takes effort and financial investments on your part. Generating long-term cash flow typically takes a few years.

Some people want passive income for extra spending money, while others want to reach financial freedom and live off of their passive income. No matter which category you fall into, there are many ways to start or grow your passive income today.

Generating Passive Income

There are many ways to generate passive income, and the more creative you get, the more options you have. A few ways to obtain passive income are creating digital products, writing a book, renting out properties, collecting dividends, creating an invention, advertising, and affiliate marketing.

Digital Products

Digital products can include e-books, mobile apps, online courses, or even NFTs. These require an initial investment of time and, sometimes, finances.

Once your product is created, you can set it up for sale online. This digital product can usually be sold a million times over with no production or shipping fees, making large profits for the creator.

If you add in a bit of effort to marketing, you can earn big while laying low.

Write a Book

If you prefer physical copies of your favorite tales, you may be interested in writing one yourself. Self-publishing would take a bit of capital to kick off, but all of the profits would come straight back to you.

You can also send your manuscript to different publishers. If selected, you would receive royalties, or ongoing payments, from the publisher for all the copies sold throughout your lifetime.

Real Estate Rentals

Renting out properties or land is a way to generate large-scale passive income. Keep in mind that you will also be responsible for maintenance fees and taxes.

If you don’t have extra property, you could start off renting out a spare bedroom or even additional land on your property.

Another alternative to purchasing additional property includes investing in real estate investment trusts (REITs). REITs are companies that invest at least 75% of their assets in real estate.

By investing in REITs, you’re eligible to receive their dividends, which payout monthly, quarterly, or annually. REITs produce some of the highest dividends on the market, as 90% of their taxable income is legally obligated to be returned as shareholder dividends.

Another alternative for those who don’t want to purchase real estate themselves is investing in crowdfunding platforms open to the public.

Collect Dividends

You may dabble in other stocks that offer stockholder dividends, apart from REITs.

If you’re interested in cryptocurrency, the equivalent would be “staking” your coins. This essentially means they are frozen on your e-wallet, and you’re paid a portion back in interest during the staked period.

Keeping your money in a high-yield savings account is also a way to earn passive income, but investing it is preferred, as savings accounts offer low-interest rates.

Create an Invention

One good invention has the power to create passive income for the rest of your life. Of course, coming up with an innovative idea isn’t for everyone, but even the most straightforward ideas can bring about outstanding success.

From the selfie-stick to the Velcro wallet, all of the items in your house started with an idea. Once you have the idea, you’ll be responsible for production costs, but this initial investment can bring you long-term passive income through invention royalties for generations to come.

Advertising and Affiliate Marketing

Affiliate marketing is when your website, app, or business promotes a particular product, service, or company. Usually, this separate entity will pay for allowing their affiliate marketing to reach your audience.

If you have an electronic product or popular site, allowing ads on it is affiliate marketing. Some individuals live entirely off of affiliate marketing and keep their sites up and running to do so.

Advertising is when you pay upfront to advertise your product elsewhere, increasing exposure to potential customers.

How Much Passive Income Do You Need?

Calculating how much passive income you need is different for everyone. You’ll first need to know:

  • Your current annual income after taxes
  • How much you currently have in savings
  • Your age
  • The age you want to begin to live off of your passive income
  • The rate of return on any of your current/planned investments

To calculate how much money you’ll need to live off of without working, you’ll need to be specific about how much you’re going to spend. Let’s say you currently make $60,000 and live comfortably. If you can continue living this lifestyle for the rest of your life, you know you’ll need at least $60,000 in passive income every year.

Using an early retirement calculator, you can see how long it will take you to reach your passive income goal. 

The above assumes that you’re going to live off your stock market investments for passive income. However, you can live off of cash flowing assets as well.

For example, you could build a website that makes you $5,000 per month on autopilot. As long as you can keep your expenses under $60k per year, this would be enough to retire.

Summary: Can you live off passive income?

As you can see, it is possible to live off of passive income. You either need enough money invested or enough cash flowing assets to pay for your lifestyle. You can use an early retirement calculator to help you identify your investment goals.

John is the founder of TightFist Finance and an expert in the field of personal finance. John has studied personal finance for over 10 years and has used his knowledge to pay down debt, grow his investment portfolio, and launch a financial based business. He is committed to sharing content related to personal finance based on his experience in his career, investing, and path towards reaching financial independence.