Passive income is money earned from assets or ventures in which a person is not materially involved, requiring minimal ongoing effort to maintain. This income stream is generated from sources like rental properties, dividends from stocks, royalties from intellectual property, affiliate marketing, or income generated through automated online businesses.

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The importance of passive income in achieving financial freedom can be highlighted through several key points:

1. **Diversification of Income**: Passive income diversifies revenue sources, reducing reliance on a single job or active income. This helps mitigate financial risks and provides stability during economic downturns or job loss.

2. **Wealth Creation and Accumulation**: Building passive income streams allows for the accumulation of wealth over time, enabling individuals to invest and grow their assets, ultimately leading to financial security.

3. **Reduced Dependency on Active Work**: Passive income provides the opportunity to earn money without actively working. This freedom allows individuals to pursue other interests, spend time with family, travel, or explore new ventures without compromising their financial stability.

4. **Financial Security and Independence**: Establishing passive income streams contributes to a more secure financial future by creating a safety net, ensuring a consistent flow of money even during periods of reduced or no active work.

5. **Long-Term Sustainability**: Passive income sources, once established, often continue generating revenue over an extended period with minimal ongoing effort, creating a sustainable financial foundation.

For instance, investing in dividend-paying stocks or real estate properties that generate rental income can serve as examples of passive income streams. As dividends are periodically paid by companies to shareholders or rental income comes in regularly from tenants, these sources provide ongoing income without requiring continuous active involvement once set up.