The basics of Passive Income vs Active Income
Passive Income vs Active Income
Today we will discuss the specifics of Passive Income and Active Income. The main purpose of this post is to highlight to you the differences between these two types of income.
It will become more evident, as you read on, that in order to pursue a direction in either path, a different set of actions and mindset is required.
Making It Clearer For You
Have you ever looked at something from a distance after which, then only did you say
‘ Oh! now I Get it.’
It’s sort of a revelation moment, whereby things all of a sudden become so apparent, so clear and with a smile, you say to yourself,
“Now, why did I not see it sooner?‘
This is the purpose of today’s article.
To give you a bird’s eye view of these two major income streams and to get yourself to ask, whether you are happy or not with your current source of primary income.
All I ask of you…
is a few minutes of your time and for you to promise me something. Promise to me that at the end of the article, you will be honest with yourself.
After all, we all live one life. Does it not make sense, therefore, to enjoy it to the fullest?
Whether you would like to believe it or not, having money can make things a lot easier.So if you are honest with yourself, then you can give yourself a really great opportunity from today to start building towards a life that you really dream of having.
Are you ready to check this out with me?
Great! Let’s get started.
What is Passive Income?
According to the Wikipedia definition, Passive Income is income that is received on a regular basis, with little effort required to maintain it.
Such income includes rental income, income from owned business enterprises that a person is not directly working with, book royalties and dividend stocks.
What Is Active Income?
Active income, on the other hand, is income that someone receives after having performed a service, examples of these types of income include, salaries or wages.
Now that we understand what these two income types are, let’s pit them against each other and see how they really can affect our lives.
The most obvious of differences between active income and passive income is the degree of flexibility.
As we mentioned, for you to be earning an active income, you must be continuously engaging in that service to be remunerated.
This ties one down. Your 9-5 job, for example, does not give you much flexibility to do what you want to do or when you want to do it, does it?
You are “locked in ” for that set amount of hours for that day, month, or years of your life. For this reason, you cannot just leave when you want to. Unfortunately, it takes precedence over everything else. Am I right?
Should you need to take leave, see to a sick family member, or are sick yourself, you need permission to take absence?
Hence No Flexibility.
If you are a Passive Income earner then you are afforded this flexibility, as the revenue system you’ve developed is earning for you on “autopilot”. You may need to check on it from time to time, but it does not need your constant attention.
With the ever-changing economy, mergers amongst corporates, a lot of companies are ridden with the task of downsizing in an effort to cut down costs.
Unfortunately, at the end of the day, it is what is best for the shareholders but bad news for the employee downstairs.
I hear stories every day and I am sure you hear them as well. Be it family or friends or even customers that I deal with, of losing their jobs, getting retrenched, forced into early retirement. And the scary part is, that they have served 5, 10, some even 15 years of their life with the company, only for them to hear that they are “of no good anymore.”
Many of these folks have focused on one particular skill and are left clueless, as to how to pick up the pieces when the wheel stops turning.
Either they find another job needing their expertise or they re-invent the wheel and find another way of earning.
Bottom Line: Active Income does NOT provide you with Security.
The Safety Net of Passive Income
How cool would it be to know, that no matter how bad the times are becoming, and that things are changing, your source of passive income will be there to give you money without fail?
And would you like to know the best part? During these “worst” times, there are tons of people who are ‘making a killing’ without having to work.
Why? Because the passive income model of theirs is working for them, like a “golden spindle.”
3.Growth VS Stagnation
How often do you get a salary increase?
Every 3months, 4months or maybe just once a year? Is the increase big? As a professional, I get an increase once a year and it is less than 10percent. Remember, I hold a graduate degree.
Yes, there may be other perks such as commissions and bonuses.
The point is that it is not huge enough, to impact any significant change. My expenses are still the same if not higher and personally there is only so much you can do with that ‘set amount’ that comes in. To add the cherry on the top of your cake is,” Mr. Tax collector..”
Unless you can figure out a way of converting your Active Income, into a Passive Income making opportunity, not much growth monetary wise will place.
Having a passive income model, allows you to duplicate the working system, and therefore you are able to see growth on a monetary level. Growth, which will certainly surpass the amount that you were earning whilst having a single job.
This gives you the opportunity, and money to venture into big deals, or buy luxuries that you would not be able to afford with a single stream of income. (Note you’ve also got to pay tax, but we leave that discussion for later on)
In other words, this gives you the ability to live and enjoy life to its fullest.
When you have built a solid passive income system for yourself, you have actually built a legacy. Something that is yours, something that will last for generations to come.
When you pass on, you leave this legacy for your children which will allow them to continually reap the benefits of the business.
Not the same can be said of having an active income. As a pharmacist, should I decide to own a pharmacy of my own and make it grow, it will not be as easy to transfer it to my kids.
- Unless, they are planning to become pharmacists as well, then only will they get to understand the business,
- They would need to be actively involved to sustain the business to make it work.
Getting into the area of earning an active income requires little or no money upfront. All you got to do, is show up to work and put in the hours.
The passive income department is different in retrospect.
Depending on the type of passive income vehicle you choose, that will be the cost that you would have to pay initially to get the ball in motion.
For instance, assuming you are interested in getting into the rental market. So you want to put up 5 flats on a 1000square meter plot.
- You need to buy the land or plot,
- Then you need plans,
- Then you hire contractors,
- Then you buy supplies and building materials,
- Then you build
- Then you lease out.
As you can see, this can work out to be a costly affair. A lot of you may ask, if it is this tough, or hard and expensive, then I should rather stick to my “day-job.”
I hear you and I understand what you mean.
But remember, this is just an example I have used. There are plenty of people entering the world of passive income, and many of them are doing it online, as the cost is much less as opposed to the above example.Some online businesses cost less than the price of a cup of coffee.
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I left this one for the end. I believe its the most important.
Because, money comes and money goes, but TIME, it goes and does NOT come back to you.
It’s no secret, that this is the one COMMODITY, that you don’t know how much you have left until it is gone.
You can count the cents and dollars in your account and tell me how much you have, but cannot tell me how much time you have left.
With this in mind….I have just one question.
Do you feel like you are merely “existing”, or are you “living” your life to your best?
Think about it…
A lot of people wish that they did not have to waste so much of their time, working their lives away making someone else rich.
On the flipside, you see people who are enjoying their lives, living it according to their whims and fancies.
Both these groups have equal hours of the day. What sets them apart is that as a result of their income streams, they each live out the hours differently.
How would you like to live out your hours, in the way you desire, from now onwards?
Before I leave you today, here is an Infographic to summarize everything that I have talked about.
CONCLUSION- WHICH ONE ARE YOU GOING TO CHOOSE?
Whilst passive income requires you to initially outlay money and involves some of your hard work, in the long run, it shows more growth and sustainability than an active income.
Yes, active income is immediate and the money is not a worry. But in these times, there is no guarantee that you will receive that amount every day. It is more volatile, unstable and risky to say the least.
Which one would you go for?
At the end of the day, the choice is always up to you. If you are within the active income group, it is never too late.
There are ways of getting into the passive income side, by starting slow and easy.
The point is that you are still starting somewhere.
Thanks folks for joining me on this talk of passive income vs active income. You have been wonderful.
Don’t forget to leave me a comment or share with friends and family.