ELI5: What is passive income?

Passive income is like getting paid while you sleep, without having to actively work for it all the time.

Think of it like this: imagine you build a lemonade stand.

• Active income is when you stand at the stand, make lemonade, and sell it to people. You only get money when you are actively working at the stand.
• Passive income, on the other hand, is like renting out your lemonade stand to another kid. You built the stand once, and now they pay you rent every week, even if you're not there. You did the hard work upfront, and now you get paid without constantly working.

• Writing a book: You spend time writing a book once. Then, every time someone buys your book, you get a little money (royalties) even if you are not actively writing.
• Creating an online course: You create the course once, and people can buy it and learn from it whenever they want. You get paid each time someone buys it.
• Investing in stocks that pay dividends: You buy shares in a company. The company makes a profit and shares some of that profit with you as dividends. You get paid without having to work at the company.
• Renting out a house: You own a house, and someone pays you rent every month to live there. You get paid without having to actively work for the tenant.