Passive Income
Income produced by assets you own rather than hours you work.
Dividends, interest, rents and royalties all pay out on the basis of ownership. The defining feature is that the payment does not stop when you do.
The word passive oversells it. Rental property carries tenants, vacancies and maintenance. A dividend portfolio requires the years of saving that built it. What these sources share is that the effort was front-loaded, not that it was absent.
The threshold that matters in planning terms is the point where this income covers expenses. Past it, employment stops being the thing that funds the household, which is the definition financial independence rests on.
Worked through
Crossing the coverage line
Twenty years of accumulation, with asset income now running slightly ahead of spending.
- Dividends
- $1,800/mo
- Net rent
- $2,200/mo
- Bond interest
- $600/mo
- Expenses
- $4,100/mo
Asset income covers 110% of expenses, so employment is no longer what funds the household.
Related in Investments & Portfolio
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