by Taylor J. Kovar, Certified Financial Planner
–Hey Taylor – I know that I want to earn a little extra money on the side, but I’m getting a little mixed up when I research ways to do it. Can you explain the difference between passive income and a side hustle? I think I know the obvious answer, but the lines seem to blur a little bit so I could use some guidance. -Josie
–Hey Josie – This is a really good question because there’s a little nuance in the answer. Very simply, a side hustle requires some hustling, while passive income is money generated without any real labor. That said, a lot of passive income opportunities require an initial hustle. I’ll break the concepts into a few different tiers to see if I can paint a clearer picture.
-1. Very passive income. Building wealth through passive income is about setting up a system that might bring in money over time with minimal ongoing effort. For example, putting some cash into a high-yield savings account, buying a CD, or getting a few shares of a dividend-paying stock may provide periodic earnings. Once you make the initial investment, these assets could potentially generate returns without
much day-to-day involvement. It typically requires some upfront capital, and while not entirely hands-off, it’s probably one piece of a broader approach to building wealth.
-2. Semi-passive income. The line starts to blur when you do some work to make money but don’t put in the effort of a full-time job. Running a blog, or investing in someone else’s blog, is a good example of passive income that requires a couple hours of work each week. If you write a book, that’s work that will turn into passive income once you’ve finished writing and start getting proceeds. Owning a rental property is considered passive income in some circles, though you’re hard-pressed to find a landlord who feels like they don’t have to do any work. In any event, there are a lot of ways to bring in money without working full-time, and some only require a little bit of work at the outset to start the revenue stream.
-3. Semi-passive side hustles. At some point, the passivity is lost and the activity counts as a side hustle. Driving for a rideshare app, renting a room on Airbnb, doing some part-time consulting on the side—these are jobs you get paid for when you do them. You choose your schedule so it’s not overwhelming, but it’s closer to a second job than a form of passive income. However, a good side hustle can be a great way to make the money you need to invest and start getting those passive earnings!
There are some obvious differences between side hustles and passive investments, and then there are some areas of overlap. The distinctions are less important than finding what works for you and your wealth-building process. Thanks for the question!
