- 11/5/2024

What is passive income?

5 min

Passive income: what is it? 

Definition 

Unlike active income, which is earned directly through your labour, passive income is earned with minimal effort. However, this doesn't mean that no effort is required at all. In fact, passive income often requires initial work and investment, but it can provide ongoing returns with little to no additional effort. One of the benefits of passive income is that it can lead to financial freedom, allowing you to pursue your passions and interests without being tied to a traditional 9-to-5 job. The key is to maximise your returns while minimising the time and effort you dedicate to a particular activity. This might involve creating something you're passionate about, leveraging your skills and experience, and generating income from it. However, it's essential to be aware that building a successful passive income stream often requires significant upfront effort and investment. 

Sources of passive income 

• Interest on your savings 
• Potential return on your investments 
• Rental investment, a classic form of passive income 
• Copyright 
• … 

Sources of passive income

Interest on savings accounts 

Putting your money in a regulated savings account can earn you interest. In Belgium, interest rates on savings accounts typically range from 0.01% to 0.45%*, depending on the bank. This basic interest rate is paid as a daily reward for keeping your money in the account. Additionally, if you maintain a balance for at least one year, you may be eligible for a loyalty bonus. While this type of interest is a safe and stable way to earn passive income, substantial returns require a significant amount of savings. Also, if the interest earned on your account doesn't keep pace with inflation, the purchasing power of your money will decrease over time. 

*Source: Test-achats/Test Aankoop 4 February 2021 

Investment in the stock market 

Investing can be a more appealing option for those looking to generate passive income. While stock prices can be volatile, a well-informed forecast or strategy can help you earn money with minimal effort. However, investing is not without its challenges.  

In this article, we share some valuable advice for beginners.  

The potential return on your investment depends on the level of risk you're willing to take and the budget you're prepared to invest, which can be as low as 1 euro per day. There are various investment options available, including shares, bonds, funds, and life insurance, catering to different financial situations.  

To succeed in investing, research is crucial. It's essential to conduct thorough research before making investment decisions.  Smart portfolio allocation is vital to generate passive income from your investments. It's also important to be patient, as it may take several years to see significant returns on your investments.  

Rental income from real estate 

Rental income from real estate is likely the most well-known source of passive income, aside from investment returns. This involves investing an initial amount in a property, which you then rent out to tenants. In exchange, you receive a monthly rental income. However, it's essential to note that this income is not entirely passive: you need to find a suitable property in a suitable location, find good tenants, take care of building maintenance and other repairs, provide invoices, pay property tax, and more. Have a look at our Real estate section for more information.