Income generation without the effort - how passive income can help you build more wealth

Passive income is defined as income generated from any source that requires minimal labour or no labour at all to yield. For some, this may sound like their day job, but it is obviously not a "normal" job where you spend a lot of time and effort to generate the income.

You could say that investments in general are aimed at generating passive income. You put in effort once (or a series of times when applying for example DCA) and you wait for your capital to grow. There are however other factors to consider to build passive income.

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"Regular"passive income

Besides cryptocurrency, in "regular" investing there are things like interest on loans you lend; rent you earn from renting your possessions (e.g. house, car); dividends you earn from investing in stocks and ETFs; income you generate by advertising on your webpage, etc. All of these are aimed at increasing your passive income.

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Cryptocurrency passive income

In cryptocurrency you have several ways to earn passive income:

1. Mining (using your computer to validate blockchain transactions and be rewarded in return)
2. Staking (committing to your holdings and letting them be used to validate transactions and support the respective blockchain)
3. Yield farming / liquidity staking (lending your crypto to others and be returned "interest" on your assets)
4. Play to earn (play games to earn cryptocurrency, strictly speaking this isnt passive but it could be fun)
5. Shitpost to earn (Can't factor out being active on this subreddit, even though it does require effort)

The last would be the regular investing and HODLing. Waiting for your portfolio's value to increase. But this does not really qualify in my eyes.

Some forms of passive income will also yield compounded returns. These are beautiful as it will yield more gains over time. As I tried to visualize below:

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Compounded versus regular returns

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Why would you bother?

In my opinion, a key methodology to live a financially carefree life is to let your money work for you. Generating as much passive income as you can will make your active income dependency less big. And the less dependent you are, the more time you have available to enjoy life. And is that not what life is essentially for?

The goal should be to change the balance of active and passive income to your favor. As the more passive income you generate, the more time you have potentially available for fun.

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The balance of passive versus active income

Generally, if you would focus on generating passive income, you are not focusing on becoming so rich that you never have to work again. As this is something you think you want, but at first is very hard to attain and in second place will probably not yield the kind of happiness you think.

Are you, and if so how, generating passive income?