What does "passive income" specifically refer to?

Passive income specifically refers to earnings generated from investments or ventures where the individual is not actively involved in the day-to-day operations. This type of income often comes from sources like rental properties, dividends from stocks, interest from savings accounts, or profits from a business in which one is not actively engaged.

The key characteristic that defines passive income is the minimal effort required to maintain or grow the income stream, distinguishing it from active income sources like salaries from a job or freelance work, where direct participation is necessary. Passive income allows individuals to earn money while focusing on other pursuits, such as additional investments or leisure activities, making it a desirable financial goal for those seeking to build wealth with less time commitment.

Other choices refer to forms of income that require ongoing involvement or are not based on investments. For instance, income from a regular job and salary from freelance work both necessitate active participation, while money received from inheritance does not qualify as income generated from efforts or investments.