💸 What Is the Passive Income Rule?
- Kaushik Sarkar
- Jun 22
- 2 min read
Your Passive Income should cover 100% of your essential (and eventually, total) expenses.
That’s the goalpost for true financial independence.
The Simple Formula:
Passive Income ≥ Monthly Expenses
If your monthly expenses are ₹1L, and you generate ₹1L+ in passive income, you’re financially free by design — whether or not you choose to work.
🧮 Step-by-Step Breakdown:
Know Your Monthly Expenses
Essentials: Rent, groceries, EMIs, insurance, school fees
Lifestyle: Travel, dining, shopping
Identify Your Passive Income Sources
📈 Dividends (mutual funds/stocks)
🏠 Rental income
🛍️ Royalties (books, IP, content)
💼 Business income (automated/managed by others)
🌐 Digital products, affiliate income
💰 Interest from debt funds, FDs, bonds
Check the Gap
Is Passive Income ≥ Expenses?
If not, you know how far you need to go.
🎯 Benchmark to Aim For:
Freedom Level | Passive Income Needed |
Survival Freedom | Covers basic living (₹50K–₹75K/month) |
Comfort Freedom | Covers lifestyle + emergencies (₹1L–₹2L/month) |
Abundance Freedom | Covers luxury, travel, legacy goals (₹3L+/month) |
📊 The 4% Rule Link (Passive Income via Investments)
If you have a corpus of ₹3 crore and invest in assets that yield 4% per year, you generate:
₹12 lakh/year = ₹1L/month (passive)
So your Net Worth Goal = 25× Annual Expenses still aligns with the Passive Income Rule — just from a different angle.
💡 Real-Life Perspective:
“If your money earns more than you do… congratulations. You’ve bought your freedom.”
🛑 Don't Confuse:
Side income ≠ passive (you still trade time)
One-time rental sale ≠ recurring passive
Volatility-based income (like trading) is not true passive—it’s just self-employment in disguise
✨ Final Takeaway:
Passive income is your silent business partner, showing up every month—without meetings, KPIs, or burnout.
It’s the bridge from survival to sovereignty.
“Work because you want to, not because you have to — that’s wealth.”
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