Passive income fundamentals: Earn money even while you sleep

Passive income fundamentals: Earn money even while you sleep

The last two years have heralded a sea change in people’s relationship to work and money. More and more people are being initiated into the eye-opening world of financial education, in no small part thanks to popular social media influencers who often make it a point of discussion. And as a result, people around the world have been learning about the incredible life-changing potential of compound interest (often cheekily referred to as “the eighth wonder of the world”), passive income, and financial freedom.

Once you’ve dived deep enough into these topics, one thing starts to become very clear: to get real financial freedom, you have to decouple your time from the money you earn. In other words, you need to aim to make money even when you’re not “working”, regardless of whether you work a job, freelance, or are self-employed. 

The good news is that this need not be a pipe dream: today, there are more ways than ever before to make such passive income. Thus, in principle, you really could be making money all the time: while giving your grumpy cat a bath, flying to the Maldives for that well-deserved vacation, and yes, even while you sleep!

1. The importance of financial literacy

The quest for passive income begins with financial literacy. Knowing how to manage your personal finances in a sound fashion is a powerful and essential skill. At its root, it involves understanding a few basic concepts, and how those concepts interact with the opportunities, tools, and systems that we currently have. So definitely not rocket science. And once you have a good understanding of these interactions, the doors to achieving your financial goals get thrown wide open.

We’ve already mentioned some key ideas in the domain of popular financial education, such as compounding, passive income, and financial freedom. Let’s take a closer look at two of these ideas, and then zoom in on some specific kinds of passive income streams. 

  • What is compounding? 

This is the simple process that can turn snowflakes into avalanches, ripples into tsunamis, and a small sum of money into an outsized fortune. Compounding is when you have a positive feedback loop of some sort, which eventually leads to runaway growth. In the context of investments, here’s an explanation of the way compounding works: 

Let’s say you start out with an investment of 1 lakh rupees, on which you’re getting a 10% annual return. So at the end of the first year, you’ve gotten a return of 10,000 rupees. Let’s say that instead of spending this amount, you choose to add it to the original investment of 1 lakh rupees. So now, you have 1.1 lakh rupees invested at an annual return rate of 10%. This means that at the end of the second year, you’ll get a return of not 10,000 rupees, but 11,000 rupees (10% of 1.1 lakh)!

Thus, each year’s return will make the invested amount (known as the ‘principal’) bigger, which will in turn make the next year’s return larger, which will make the principal even bigger, and so on. And this process can continue indefinitely, in an endless virtuous cycle. 

Source: The Calculator Site 

The magic of compound interest is almost always an essential ingredient in becoming wealthy over time, even if one starts out with modest investments. 

Moreover, the idea of compounded returns can also be usefully applied to other domains of life. For instance, as author James Clear laid out in his bestselling book Atomic Habits, if you can get just 1% better at something every day, in a year’s time, through the power of compounding, you will be 37 times better at it. Now, admittedly, quantifying one’s ability so precisely is rarely possible, but the point still stands: small, consistent gains balloon into mammoth returns over time.

  • What is passive income?

For our purposes, passive income is income that you generate without putting in any time or labour. In effect, it is money that you make for work that you’ve already done, products that you’ve already created, or assets that you’ve already acquired. Now, realistically, a small amount of ongoing time and effort might still be required to maintain such income; for instance, if you’re renting out some property, you still need to keep it in good shape. However, the time and effort you’ll put in will be negligible compared to the income you’ll get out of them; this is in stark contrast to most other kinds of income-generating arrangements, such as freelancing or jobs.

Most jobs typically offer a one-to-one correspondence between income and time. For every hour worked, we get a certain fixed amount. Now, while many of us have been brought up to think that this is an ideal situation, there are definitely several drawbacks to this as well.

For one thing, there is a strict coupling between your time and money: the only way to make more money is to work longer hours. But there are only so many hours in a day! And that means that there is a hard cap to how much we can make, even if we’re willing to work more.

Of course, you could also make more money by getting a bunch of pay hikes, but those are often unreliable, infrequent, and outside of your control, for the most part. For instance, factors such as your company’s financial health and the availability of younger, cheaper talent could play a major role in determining whether you get a coveted promotion. In other words, relying entirely on a company or employer to keep your financial boat steady is unwise.

Today, mostly thanks to the internet, it is easier than ever before to take charge of your financial well-being and find a way to make money online that doesn’t have these drawbacks. If you decouple your time and income, what you get is income that keeps coming in long after you’ve put in the requisite time and effort: passive income. We’ll talk about this in greater detail further below.

2. Passive income: what it is and isn’t 

As discussed above, a key trait of passive income is that there is no strict correlation between the amount of time and effort invested in something and the amount of passive income you could get from it. A classic example of such a situation is dividend investing: once you’ve invested in a dividend-paying company you deem to be reasonably reliable, you’ll keep getting steady returns every year, without having to do anything after having made the initial investment.

A more modern example of a potential passive income stream is an e-book: once you’ve written such a book and put it up for sale, people might keep on purchasing it for years to come. 

To gain some more clarity, let’s look at some other ways to make money apart from jobs, and why they don’t qualify as passive income streams:

  • Side hustles 

A side hustle is typically “any activity outside of your day job that helps make more money.” Someone with a side hustle might have a second, part-time job, moonlight as a musician, or sell design services online. 

Often, though, a side hustle requires a fair amount of active engagement on the part of the hustler. This is true for all the three examples listed above, for instance. While there certainly could be some side hustles that bring in passive income, it’s not at all a given, and is usually not the case. 

  • Consulting and freelancing

Consultants and freelancers are self-employed: that is, while they don’t have a fixed salary, they’re still being paid in exchange for their expertise and skills. So these aren’t passive income streams. 

  • Speculative investing

In the modern world, there are several kinds of “products” that you can buy in the hope that they will go up in value over time, such as real estate, stocks, futures, options, commodities, and cryptocurrencies. However, putting your money into these products is basically a form of speculation, as there are no guarantees at all that you will make any money off of them; in fact, you could even lose the money you put in. Thus, such speculation can’t be said to be a realistic source of passive income.

3. Why should you consider earning passive income? 

Now, before we start talking in earnest about all the various routes that you can take to make some passive income, let’s have a quick rundown of the two main reasons why you should be thinking about doing so in the first place.

  • Freeing yourself from the obligation to work

Imagine a scenario where the passive income you’re bringing in every month is enough to cover your monthly expenses. This would mean that in principle, you could simply live off of the passive income! If your lifestyle was one you were happy with, then you wouldn’t have to work for a living anymore: the passive income would take care of all the bills, while you would be in complete control of your time, free to do whatever you wished to.

This is what financial freedom looks like: a blissful state where you no longer have to exchange your time for money, as all of your past effort keeps the money rolling in. While reaching such a seemingly mythical state might have been much harder just a decade or two ago, today, becoming financially free is within the reach of many, if not most, of us. There are several ways today to make money online, for free or with minimal investment, by effectively leveraging only our existing resources.

A smart combination of passive income and investments with good yields (remember how we talked about the power of compounding?) is probably the best way to obtain financial freedom way earlier than you would otherwise. Of course, this doesn’t mean that you should quit your job the moment some passive income starts coming in. Remember: the main goal is attaining financial freedom as soon as possible, and reaching this goal will require you to have a pretty large corpus saved up. So you might not be able to leave your job right away, but you should be able to retire much earlier than you would have otherwise. 

In fact, there’s a whole lifestyle movement called FIRE (Financial Independence, Retire Early) that, as its name suggests, aims to upend the conventional dogma that one should typically retire only after the age of sixty. With a fair amount of planning, calculation, and thrift, FIRE adherents can often shave that age down to the forties, or sometimes even the thirties.

  • Self-actualisation


There’s a concept in psychology known as Maslow’s Hierarchy of Needs. The basic idea is that once the more fundamental needs of people, such as food, shelter, and security are taken care of, what people yearn for and aspire towards is the complete expression of their true inner potential, whether cognitively, physically, or creatively. This level of psychological advancement is referred to as “self-actualisation”.

Thus, freeing yourself from the need to work in a job is probably a critical step to fully realising your potential, unhindered by the more mundane worries of life.

4. How should you go about earning passive income? 

This is actually a very personal question that only you can really answer. Some of the passive income streams discussed below have certain non-negotiable requirements as far as your skill-set is concerned: for instance, you can’t really make an app with a low budget unless you can code. A lot also hinges on the monetisable assets that you already have: becoming an Airbnb host works only if you personally own some property. Lastly, your aptitude, experience, interests, budget, and level of risk-averseness will all have a role to play in narrowing down this pool of ideas for your particular case.

It might help to break down this grand question into the following: 

  1. What existing skills can I turn into products that people will want to buy?
  2. How much investable money do I currently have?
  3. What do I bring to the table that is unique to me and that people would want?
  4. How much effort, time, and money am I willing to put into something before starting to see the returns? 

Answering these questions honestly should result in more clarity about which passive income ideas work best for you.

5. Passive income ideas for 2022

There are dozens of passive income streams that people are using around the world. In the interest of brevity, we’ve narrowed them down to only those streams that do not require a lot of ongoing work to generate passive income off of work already done.

For instance, while making money off of YouTube ad revenue is a form of passive income, you usually need to keep making videos to keep your channel active and get people to view your older videos. For this reason, we won’t be talking about this as a passive income stream.

Given this condition, the ideas to generate passive income that are given below can be broken up into three main categories:

  1. Creating digital assets that can generate passive income
  2. Monetising your existing real assets to earn passive income
  3. Investing to earn passive income

5.1 Creating digital assets that can generate passive income

This is the category that requires you to have the least amount of existing resources. All you’ll need is a laptop, an internet connection, and some domain-specific knowledge or skills.

5.1.1 Writing ebooks

If you’re an expert at something — French grammar, playing the bass guitar, or making twenty varieties of biryani, for instance — you could make money by sharing your knowledge with the world in the form of an ebook.

Probably the best way to give your ebook the widest reach, and thus maximise your chances of earning a recurring passive income from its sales, is to publish it on Amazon’s Kindle Direct Publishing Program. Moreover, by doing so, you could get up to 70% of the book’s sales amount as royalties.

5.1.2 Creating an online course

Yet another increasingly common way to share your specialised knowledge or experience with the world is to create an online course. While such courses are almost always video-based, it’s alright even if you’re camera-shy: you can simply create a presentation and include a voice-over on top.

While you could simply upload your course to YouTube and get some ad revenue, a better way to go about it would be to publish your course on an education-focused platform like Udemy. This way, you can set your own price for the course, and you’ll get a share of the course’s total sales amount.

While any relatively new smartphone’s camera should work just fine for recording the videos for your course, you might need to buy a decent microphone, as audio quality makes a huge difference to not just the comprehension but also the perceived quality of a course.

5.1.3 Licensing your music

If you’re a musician, you can make your music available to be licensed by video creators and filmmakers on various platforms, such as Music Vine, Marmoset, Audiojungle, and Pond5.

As you might expect, most of these platforms have certain quality standards that your compositions will have to meet for them to list them. For instance, Music Vine scores every submitted piece of music out of 10 for each of the following criteria:

  • Overall production quality
  • Musicianship
  • Cohesiveness of arrangement
  • Quality of instruments/samples
  • Emotiveness
  • Commercial relevance / usability

In addition, some of these platforms may require that a certain proportion of your submissions be ‘exclusive’, i.e. that they not be listed anywhere else. You’ll also typically get a higher cut for exclusive pieces.

As far as your earning potential goes, it seems that if you’ve been putting up high-quality work regularly on various platforms for a few months, getting something like $300-500 (INR 22,000-37,000) per month is not all that uncommon, according to a video about selling stock music online by a YouTube channel called Stock Music Licensing. Moreover, you can sometimes get lucky and make up to $400 (nearly INR 30,000) off of just one track, as was the case for someone mentioned in the video above.

5.1.4 Selling stock photography or footage

High-quality and sometimes niche-specific photos and videos are often used to embellish websites, presentations, and YouTube videos. If you have a high-quality camera and an eye for the interesting, you can make some money by becoming a contributor on platforms like Shutterstock, Alamy, Adobe Stock, EyeEm, and Bigstock.

Once again, most of these platforms will have content guidelines that you should familiarise yourself with and adhere to. For instance, Adobe Stock requires your video submissions to be:

  • Appropriately lit and exposed
  • Free of visual and audio noise
  • Minimally processed
  • Visually stable unless shakiness is relevant to the content
  • Without noticeable wobble (known as “jello” artefacts) or flash banding

The concept of ‘exclusivity’, discussed above for music, applies here as well: you will typically get a better rate for exclusive material.

As for how much you can make by putting your photos and videos up on these platforms, once again, YouTubers discussing their earnings seem to be the best way to get a fair idea. For instance, in December 2020, the operator of a YouTube channel called Handcraft Films made around $400 (close to INR 30,000) as stock photo and video income. It goes without saying that the more platforms you’re on and the more commercially relevant your work is, the greater your chances of making a sizable side income off your photos and videos.

5.2 Monetising your existing real assets to earn passive income 

This category of ideas requires you to already have some “real assets”, i.e. property or equipment. By leveraging their value, you can generate some income with minimal work being required on your part. 

5.2.1 Renting out property

This is probably one of the oldest ways that people have been earning passive income. If you have a second house, or even an unused guest room, garage, or storage space, renting it out is usually a great idea. Doing so will not just bring in some additional income, it can also help keep your property in good shape, preventing various issues that can arise from disuse.

You can list your property on platforms like NoBroker and Nestaway so that potential tenants can get in touch with you without brokers and middlemen involved.

5.2.2 Becoming an Airbnb host

In certain circumstances, you might not want to rent your property out to a single tenant, or might find it difficult to find a suitable tenant. In such a scenario, you could rent out a property or guest room on a short-term basis by becoming a host on Airbnb. Not only do you get complete control over aspects like the cancellation policy, you’ll also automatically be covered by damage insurance of up to a million dollars (nearly 7.5 crore rupees)!

5.2.3 Renting out equipment

In addition to real property, you can also rent out other kinds of property, such as your car (e.g. through Zoomcar), photography equipment (e.g. through Bragpacker), and even your gaming consoles (e.g. through SnapOnRent; only available in the Delhi-NCR region currently). 

Moreover, you can even use your car as an advertising space through platforms such as CashUrDrive. However, note that doing so may require you to first obtain permission from or pay a certain fee to local authorities. Hence, it is recommended that you look up the rules for your jurisdiction before putting up any advertisements on your vehicles. 

5.3 Investing to earn passive income

The ideas in this category require a fair amount of initial capital to get things going. You should also carry out thorough research into whatever you’re investing into, as the ideas here do carry an unavoidable, albeit small, element of risk. 

5.3.1 Investing in dividend stocks 

If a company makes a profit in a given year, it may choose to reinvest that profit back into the company or may decide to reward company shareholders by distributing that profit among them. Such a share of profit received by an investor by virtue of their shareholding is called a dividend.

Thus, it can often be a good idea to buy shares in a company known for giving dividends. However, buying shares in any company always carries some risk, because if the share price dips below the point where you bought in, you will actually be losing money. This risk can be mitigated, however, by only buying so-called blue-chip stock: shares of companies that are huge, well-established, financially sound, and have a reputation for quality and reliability.

Thus, buying dividend-paying blue-chip stocks is an excellent way to get some passive income through the stock market while minimising the risk involved.

5.3.2 Becoming a sleeping partner in an existing business 

A so-called sleeping partner in a business is a person who obtains ownership of part of a business by providing it with capital, but who remains otherwise uninvolved in its day-to-day operations.

If you’re aware of local businesses that are doing well but that might be looking for an infusion of capital to grow or expand, you could try to become associated with one of them as a sleeping partner. Again, it is essential that you pick a business that is profitable and is very likely to remain that way. 

5.3.3 Staking cryptocurrencies

Love them or hate them: the whole world seems to be talking about cryptocurrencies right now. This asset class is probably the most volatile class out there currently, with massive fluctuations that can make even seasoned investors giddy. We highly recommend that you do your own due diligence and research before buying any cryptocurrencies. As of now, cryptocurrencies seem to be speculative rather than solid investments.

However, if you do decide to go ahead and buy some cryptocurrencies, you should know that there is a concept in the crypto world that’s reminiscent of dividends, called “staking rewards”. “Staking” is a process in which the owners of certain cryptocurrencies can commit their holdings to support a blockchain network and confirm transactions. What is of importance to us is this: by staking certain crypto holdings of yours, you will receive a staking reward that is typically quite generous (often as high as 20% every year). However, note that this reward will be given out in the form of the same cryptocurrency that was staked to begin with. 

If you’ve already invested in cryptocurrencies or are planning to do so soon, staking is an excellent way to make some returns off of your crypto holdings. Platforms in India that allow you to stake your crypto include CoinDCX and Vauld. 

One thing that’s important to note is that while trading cryptocurrencies is not illegal in India as of January 2022, the government is planning to bring in new legislation that could affect the status of cryptocurrency transactions. Once again, we recommend that you thoroughly research this space before putting any money into it.

Dig deeper into the world of passive income 

At this point, there’s a good chance you’re excited to know that there are so many different ways you could start making some passive income right away. To keep your momentum going, we’ve compiled a handy list of relevant resources below. Happy link-hopping!

1. How to Earn Passive Income: An Insider’s Guide

    Another great introductory piece on passive income.

    11 Real Ways to Make Money Online in 2011 [Ranked]

    Get a breakdown of passive income streams by criteria such as the initial effort and investment needed, along with inspiring examples of people who managed to successfully tap into these streams.

    3. 8 Common Hobbies You Can Make Money From

    Find out how a seemingly ordinary hobby of yours could be used to sow the seeds of financial freedom.

    4. 16 Online Business Ideas You Can Start on the Side

    Yes, a business typically requires a lot of personal engagement to keep alive and kicking. However, there are many online businesses that can start to look more like passive income streams once growth and delegation enter the picture. Explore some such online business ideas here.

    5. 20 Best Low-Investment Business Ideas You Can Start Online

    With all the online tools and platforms at your disposal these days, sometimes all you need to make money is an idea.

    6. Affiliate Marketing: How to Turn Product Recommendations Into Passive Income

    With affiliate marketing, you get paid whenever someone buys a product online using a referral link or code that’s unique to you. How do you get them to use your link? By creating content on a blog, YouTube, or social media platforms that showcases a product and encourages your audience to buy it using your link or code.

    If you’re able to attract a large readership or viewer base, then your past content can keep bringing in some passive income on a regular basis. Check out the post above to learn more.

    Financial freedom is the freedom to control your life 

    As you can tell, these passive income avenues aren’t get-rich-quick schemes: when starting out, unless you have a lot of capital ready to be deployed already, a fair amount of effort and time will be needed to get things off the ground. However, once you reach a certain critical point, you will start to make recurring income off of your past work, potentially for years. Remember that financial freedom is a supremely worthy goal to pursue: organising your life around it and working towards it will radically change your life for the better. 


    How can I make passive income?

      There are many ways to make some passive income, including investing in dividend-paying blue-chip stocks, creating and selling digital products, and renting out your real property and equipment.

      Can I sell my own stock photos?

      Yes, you can sell any photos and videos you may have captured on platforms such as Shutterstock and Alamy.

      How do I create my own course?

      To create your own course, start by deciding on what you want to teach and the topics to be covered. Then, for each topic, use a high-quality camera and microphone to record yourself providing the instruction you wish to provide. You can also use presentations if you don’t wish to show your face. Lastly, upload your course on a platform like Udemy.

      How do I become an Airbnb host in India?

      To become an Airbnb host in India, start by earmarking a comfortable space for your guest(s) and deciding how much you would like to charge per day. Then, sign up to be a host on the Airbnb platform.

      Do you want to create your own online store?