7 Ways to Earn Passive Income (and Why It's So Important)

If you're looking to build wealth, if you're looking to save up a nest egg for retirement, or if you're merely looking for a way to alleviate financial stress in your life, passive income is one of the best ways to do it. The phrase naturally sounds like a buzzword, or something you'd hear on a late-night infomercial, but passive income really exists and operates exactly how it sounds--earning you revenue without demanding much effort or attention.

Of course, this isn't a get-rich-quick scheme, and you won't be able to earn millions in passive income, but even a small stream of extra revenue can make a major difference in your life.

Why Passive Income Matters

Passive income is especially powerful because it doesn't eat up your time. The old adage "time is money" applies here; if you think about most conventional forms of earning revenue, money is simply an exchange of your time. You're paid an hourly rate or a salary for straightforward work, and the time you spend getting an education or more experience can yield higher pay rates. The best economic decision, then, is the one that earns you the most money for the least possible time--and passive income costs basically no time on an ongoing basis.

The tradeoff is that most passive income sources require an upfront investment of time or money to begin paying off. Take these methods as examples.

Dividend-paying stocks. Your first option is to invest in stocks of companies with a long history of paying dividends. Dividends are basically a way for companies to share profits with shareholders, usually for a fixed dollar amount per share of ownership. These companies tend to be in excellent financial health, making them good long-term investments in general, but it's the recurring dividends that will serve as your main source of incoming revenue. Choose your companies carefully and try to diversify your holdings here; you can even let someone else do this work and simply choose a dividend-based mutual fund.

Rented real estate. Real estate has been a staple investment for decades, and for good reason--demand is always going to exist. Buying a rental property will allow you to pay for the mortgage with the rent your tenants pay you, hopefully leaving you enough left over to earn a reasonable profit. You'll also probably turn a profit on the property itself if