What is Passive Income? Passive Income is recurring revenue that requires little to no ongoing active work to maintain, dividends, interest, rental income, royalties, and capital gains from long-held index funds. In FIRE, it is the fuel that replaces a paycheck and powers financial independence.
Worked example: a $500,000 portfolio with a 60/40 stock/bond mix yielding roughly 2.5% in dividends and interest generates about $12,500/year in cash-flow passive income, plus another ~$22,500/year in average capital appreciation. A $1,500,000 portfolio doubles that, generating $37,500/year in dividends alone, which covers a frugal Lean FIRE lifestyle without ever selling shares.
“Passive” is a spectrum, not an absolute. Truly passive streams (index funds, Treasury bonds) require nothing. Rentals, royalties, and small businesses sit closer to “semi-passive”, they throw off cash but demand oversight, maintenance, or platform management. Many FIRE practitioners intentionally build 2–3 uncorrelated streams (index dividends + rentals + royalties) so a shock to one does not cascade.