Living off passive income is a reasonable and achievable goal, especially if you're willing to adjust your budget and lifestyle so that you don't have to actively work. If you're successful, you'll be rewarded with more free time and more flexibility as to how you spend your life.

Focusing on passive income not only can lead to more money in your pocket, it can take you all the way to financial independence. This is especially true if you keep working at a job or other enterprise and use your passive income to build your wealth.

Passive Income Overview

The basic idea of passive income is that you invest in an asset that you intend will make money without your putting much work into it. Where could your passive income be coming from? 

Traditionally, passive income derives from investment in real estate or from dividends and interest — all without your active ongoing involvement. Newer possibilities for passive income include online sales of various types, including physical and digital products, affiliate sales, and dropshipping stores. 

Dividends and Interest 

If you invest in a company and it does well, you can receive dividends. For instance, if you invest in a whole life insurance policy, you could have a variety of dividend options. If you invest in the stock market, especially in blue chips, you might earn dividends on your shares.

You could earn interest on a bond or a bank certificate of deposit. You can also earn interest by lending your money via a peer-to-peer (P2P) organization. Be aware, though, that interest income usually does not keep up with loss from inflation.

Real Estate

You could make passive income from real estate in two ways. You can rent out the property, and/or you can hold it and sell for a profit if the market cooperates.

As a landlord, once your relevant costs — including perhaps a property manager — have been paid, what's left from the rents collected is your passive income. Additionally, tax deductions for owners of rental property can significantly benefit your tax liability. And when you do sell the property, the capital gains tax rate for investment properties is favorably capped. 

Limited Partnership

You might obtain passive income by investing as a silent partner in a business or property. As long as the investment is making money and increasing in value, you should receive recurring income and also a payout if and when the business or property is sold. 

Product Sales

A fairly easy way to make passive income by selling products is to join an affiliate program. You can choose a company with lots of products and you can make a little from each one you sell, or you can choose a company with a high-end product and develop a website and marketing strategy to sell it in exchange for a large commission. 

You may be able to sell your own products, physical or digital, online in a way that takes very little work after the initial set-up. You could self-publish a book or create and sell an online course. 

Passive Income While You Snooze

Making money while you sleep is definitely a good place to aim, but there will be work, both in setting up the income stream and in making the money to invest in your passive income enterprise in the first place. And once your passive income is happening, you're still going to have to pay some attention to it, if only to count your money. One nice thing is that you won't have to pay FICA or Medicare taxes on it, as it's not considered earned income.

Few things are more fun than making money from work you did so long ago you can't even remember doing it. This pleasure can be a daily perk when you're living off passive income, watching your bank balance grow as you spend your days the way you want.