What Is Passive Income? A Realistic Guide for Beginners
What Is Passive Income? A Realistic Guide for Beginners
Here’s how I explain passive income to every new entrepreneur I mentor.
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How to plan your business
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All in a simple goal-oriented format.
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Let’s clear something up right away: passive income doesn’t mean doing nothing and getting rich overnight. But it does mean creating smart, scalable systems that allow you to earn money without constantly trading hours for dollars.
In its simplest form, passive income is money that flows in, with little ongoing effort after the initial setup. Think digital products, affiliate links, or investments that work in the background while you focus on other things. Like growing your business or living your life.
For entrepreneurs, especially coaches, consultants, and creatives, passive income can be the game-changer that allows you to scale sustainably. Even through slow seasons. Stop depending on client work alone.
In this post, we’ll break down exactly what passive income is (and isn’t), the most common types, what it takes to build it, and how you can start creating your first stream. Even if you’re short on time or tech skills.
What Is Passive Income, Really?
At its core, passive income is money you earn with minimal effort required to maintain it once it’s up and running. Unlike active income, where you’re directly exchanging your time for money (think client sessions, freelance work, or hourly pay), passive income keeps working for you after the initial work is done.
That doesn’t mean it’s truly effortless. Most passive income streams require some kind of upfront investment, either time, money, or both. You’ll need to create the product, build the system, or invest the capital. But once it’s set up, the goal is for that income to flow in with minimal hands-on involvement.
The key takeaway? Passive income isn’t magic. But it is a smart, sustainable way to grow your income while freeing up your time. And for entrepreneurs who are already wearing multiple hats, that kind of flexibility is gold!
Common Types of Passive Income
There are countless ways to earn passive income, but some are especially well-suited for coaches, consultants, and creative entrepreneurs. Here are a few of the most common (and accessible) options:
Digital Products
Selling digital resources, like eBooks, workbooks, templates, or mini-courses, is one of the most popular ways to earn passive income. You create it once and can sell it over and over with little to no ongoing effort. These work especially well when tied to your expertise or audience’s specific needs.
Investments
This includes things like dividend-paying stocks, ETFs, or rental properties. While this usually requires more capital up front, it’s one of the most traditional forms of passive income. Your money is doing the work for you.
Affiliate Marketing
If you regularly recommend tools, software, or products to your audience, affiliate marketing can be a great fit. You earn a commission every time someone buys through your unique referral link. Think: email newsletters, blogs, or content with helpful product mentions.
Royalties or Licensing
If you’ve created intellectual property like a book, a design, music, or even branded frameworks, you can earn royalties when others purchase, license, or use your content. This can take more time to set up, but pays off long-term.
Ad Revenue and Website Monetization
Once your website or YouTube channel gets regular traffic, you can generate income through ads. While it may not start big, it can grow steadily with consistent content creation and SEO.
What’s not passive income?
“Done-for-you” services, coaching sessions, or any work where you need to show up live. Those are active income. Even if they’re well-paid and streamlined. Passive income means it keeps earning even when you’re offline.
Benefits of Building Passive Income Streams
Passive income isn’t just about making extra money. It’s about building a business that supports your life, instead of consuming it. Whether you're looking for more flexibility, financial stability, or just fewer client calls on your calendar, passive income can help you create a more sustainable way to grow.
Personally, I needed to find a way for my business to continue even when I was offline. I had two boys under four, and I could not always anticipate having free time to work with clients. Having a passive income stream to help coast you through these times is invaluable.
Here are a few of the biggest benefits:
Diversified Revenue
Relying on one income stream (like client work or contracts) leaves your business vulnerable. Passive income adds stability by creating additional, low-effort income sources. Especially helpful during slow months or between projects.
Time Freedom
Once your passive income stream is up and running, it can continue to generate revenue with very little maintenance. That means more time to rest, travel, create, or focus on higher-level strategy instead of always being in the weeds.
Scalability
There’s a limit to how many clients you can work with or hours you can bill. But passive products and platforms don’t have that same ceiling. You can sell to 10 or 10,000 people without increasing your workload.
Peace of Mind
Knowing that income is coming in, even if you take a week off, gives you breathing room. It’s a cushion that makes running a business feel less chaotic and more aligned with your actual life goals.
What It Takes to Build Passive Income
Passive income is appealing for a reason, but it’s not instant or effortless. It takes planning, intention, and upfront work. The good news? You don’t have to do it all at once, and it doesn’t have to be perfect. You just need to know what you’re committing to.
Here’s what goes into building a sustainable passive income stream:
Time or Money Up Front
You can invest your time (by creating a product, writing content, building an email funnel), or you can invest money (outsourcing, ads, platform tools). Often, it’s a combination of both, but either way, something has to go in before money starts coming out.
Clarity on Your Audience
The most successful passive income products solve a specific problem. The clearer you are on who you’re helping and what they need, the easier it becomes to build something people will actually buy, without needing to pitch constantly.
Consistency and Patience
Passive income takes time to grow. Most products don’t take off on day one. But if you keep showing up, creating content, testing, and improving, you’ll build momentum. Passive income rewards the long game.
Simple Systems and Automation
You don’t need a 10-step funnel or complex software. A landing page, a payment processor, and an email delivery system can be enough to get started. The key is making it easy for people to buy, and for you to deliver without being involved every time.
How to Start Creating Your First Passive Income Stream
Starting small is not only okay, but also smart. Your first passive income stream doesn’t need to be a full-blown course or a fancy platform. It just needs to solve a real problem for your audience in a format that’s easy to deliver.
Here’s how to take that first step:
1. Identify a Problem You’ve Already Solved
What do people constantly ask you about? What solution or shortcut have you already created for your clients, or even for yourself? That’s your goldmine. You don’t need to reinvent anything. Just package what you already know.
2. Choose a Format That Feels Easy to Create
Start with what you’re comfortable with. It could be:
A PDF workbook
A Notion or Excel template
A short video tutorial
A checklist or guide
An audio series
Think: small, useful, actionable.
3. Build a Simple Offer
Outline the transformation: “You’re here → this helps you get there.” Give it a clear name, a short description, and a price. Even a $10 digital product can make a difference when it’s positioned well and solves a specific pain point.
4. Set Up Basic Automation
To make your life easier, use an all-in-one platform like Squarespace. I love having one system handle as many different processes as possible. It saves me from decision fatigue, moving all of my assets around, and, let’s face it, learning how to use multiple different platforms.
Squarespace can handle your:
Product hosting and shop,
Website and landing pages
Email funnel and automations
Course, member area, or paywall
Easy integrations for everything from merch to payments
And so much more.
Plus, it has a ton of templates so you are always aesthetic and on brand.
I started my blog journey on Blogger, then moved to WordPress, and finally to Squarespace. This is the only platform I use now, and I have never looked back. Try it free for 14 days and see what the hype is about.
5. Promote It (Consistently!)
Talk about it in your content. Share how it helped you or your clients. Add it to your email footer, blog posts, social bios, and onboarding sequences. You don't need a big launch it with all the fanfare. Just let people know it exists.
Passive income isn’t about creating the “perfect” product. It’s about getting something valuable out there and learning as you go.
Passive income isn’t a quick fix, but it is one of the smartest long-term moves you can make as an entrepreneur. It gives you breathing room, stability, and a way to earn without constantly showing up live.
You don’t need to build an empire overnight. You just need to start with one small, helpful product. Something you’ve already figured out that could make someone else’s life easier.
And remember: even slow progress is still progress.
Download the Business Planning Checklist to start mapping out your first (or next) passive income stream with clarity, confidence, and purpose!
I want to be transparent so that there are no misunderstandings. As an affiliate, I may earn a small commission from any products linked in this post. This is not a sponsored post, and I was not asked to recommend these products. These are products that I genuinely love and wanted to share with my audience.