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What Is Passive Income?

There are different ways to generate income: Going to work, for example, or passive income. What is passive income exactly?

First of all: Passive income has nothing to do with getting money as a gift. The normal employment relationship is a barter transaction “time for money”. One of the other models is entrepreneurship: the entrepreneur doesn’t sell her time, but products – like selling books, for example.


In order for books to sell, we don’t have to sit in an office. These sources of income are independent of our time. For example, you could be a salaried employee and still earn money from my books on the side (they provide me with passive income). I had to write and market the books, of course, but was able to automate a lot afterwards. For example, a fitness instructor can either teach classes where she has to be physically present (she’s selling her time), or offer an online class (she’s selling a product). Income from selling photos or webinars or else rental income are other examples of passive income.


It’s about maximizing the sale of a product without having to work as much as possible. I invest at the beginning and then diversify widely. Because if I’m paid per hour, my income is capped because I can only work a certain number of hours. But in the same time, I can sell unlimited products. That’s scalability.


Let’s talk about stocks

If you want to buy stocks, you should definitely read up on it beforehand. There are many books that explain it super simply or free Youtube videos and podcast. If you want to put some money into it, you can also take an online course or seminar.


If you have a larger sum of money available, before investing in stocks, you should put some of it in your nest egg. After that, inform well and pay attention to fees. You can get advice from the bank advisor, but any advice costs money, so you can also inform yourself and open a securities account online.


What does dividend mean and how important is it?


A dividend is a distribution of stock income. By the way, this is also passive income. How important is the dividend? That depends on the strategy: My personal strategy is to save up. Personally, I’m less interested in dividends for the time being. When we’re talking about retirement provision, what’s more important is what we’ll get out of it in 30 years’ time.


It is advisable to have a long-term strategy and to diversify widely. This can be done well with equity funds. So instead of investing in individual stocks, I buy a share in a fund, which is a kind of stock basket that contains various individual stocks. I then have all the shares that are in this fund proportionately in my portfolio.


Active and passive funds

Basically, a distinction can be made between active and passive funds. Active funds are managed by fund managers who decide which shares the fund contains, which are sold and which are added. Passive funds, such as ETFs, track a specific index. They are less expensive than active funds.

Hopefully this post has helped you have a better understanding of different forms of passive income.

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