money-tree Anyone who has dreams of financial freedom and security has heard of passive income.  There are many types of passive income – money that you earn without directly working.  This is the best type of income, since you don’t need to physically spend time earning it.

If you go to a 9-5 and earn a certain amount for each hour of work you do, that’s not passive income.  In fact, that’s quite the opposite – and something you eventually should want to get away from.  Instead of focusing on hourly wages, take a look at the top 5 types of passive income:

  1. Dividends – One of the best, most consistent forms of passive income.  Dividend-paying stocks are generally about as rock-solid as you can get in the stock market, and pay consistent dividends.  This is almost-guaranteed money.
  2. Capital Gains – While not passive income in the same sense that dividends are, I still include it here.  Whether you’re watching the ticker or not, your stocks are ( potentially ) increasing in value over time. 
  3. Real Estate Cash Flow – If you own real estate and currently have tenants, you should have some sort of positive cash flow.  This is mostly hands-off – you get that income regardless.
  4. Equity Growth – Month after month, year after year, your investment real estate grows in value.  The longer you hold it ( barring bubbles / bad market conditions ), the more equity you gain.
  5. Blogging Income – Some will argue and say that blogging isn’t exactly passive.  It is and it isn’t.  There’s certainly quite a lot of work involved – the posts don’t write or promote themselves.  However, advertising revenues still tick upwards whether I’m writing a post, at my day job, eating dinner, or taking a nap.  I’ll consider that to be passive.

There is a finite amount of time in the day.  There are only so many hours that you can work at a day job and earn an hourly wage.  Eventually you will run into a wall that you cannot pass – there is no more time in the day.  The way to climb that wall and move forward is with passive income.  The more streams of passive income you can build, the further you can move in your financial life.  Whether at retirement time or ( hopefully ) years before, you want to be able to rely solely on your passive income.  Imagine all the free time you would have if you didn’t need to work a day job anymore.