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.
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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.
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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.
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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.
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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.
21 thoughts on “The basics of Passive Income vs Active Income”
First of all thanks for this great article.While ago I was thinking about passive vs active income idea and I realized same think as you mentioned there with the last aspect-The TIME .Most important as you said, is the time.
After reading your article,I feel now more motivated to focus more on online business.Thank you.
Thanks for sharing.
Yes, time is very important and often something that we overlook. I really want to bring this to the awareness of as much people as I can.
I feel that there are so many people with such awesome talents, that allow to go unnoticed or underexposed.
We all have gifts and they are meant to be shared with the world. Not locked away, until its too late.
I am happy to hear that you are focused on your online business.
Best of wishes, in making all your dreams come true
I really like your website because it is simple and explains things pretty much so anyone can understand it. I love how you point out the legacy aspect of passive income and that the growth can often times be more than active income. I am a beginner at passive income and I never really thought of those two benefits. Your pictures and diagrams work nicely. I can honestly say I enjoyed ready your website and I learned a lot!. Great job!
Thanks for the compliment. Really appreciate it.
Yes, the exponential growth part of the passive income model is really an exciting thing. Once you have a successful system in place, then there is no limit as to how much money you can make.
Glad you liked the diagrams and pictures.
Please do stop by again.
Hi there! Thanks for clearing this up. I have seen the mention of passive income in various websites, but I’m not convinced that everyone truly understands it meaning!
I like the idea of working on building up passive income as I know from experience what can be achieved. In one of the earliest affiliate marketing programs that I promoted I was lucky enough to get in early and build up a few sales. That same affiliate program paid me for about 2 years after! It goes to show the power of passive income.
It’s a pleasure.
Well done to you on the success of the affiliate programs. This goes to show that by leveraging your efforts on a passive income model online, the result is pretty powerful.
May you grow from strength to strength.
All the best
I totally agree with you
Time is our main capital in this life, as long as we know the value of this commodity; we will live the true quality of life.
Business wise, I believe that starting your own online business is the best choice in our current time, you are just investing your time in the right direction, not to mention that you are following your passion.
Thank you for this nice article.
Absolutely, if we start to value our time, then we will value how our time is spent.
With all the reasons that I have mentioned, now is the BEST time to start your own business. You are moving in a direction of control your financial destiny and building a more stable future for your family.
Glad you enjoyed the article.
I love this article, I was looking for this exact answer myself back then. How I wished I had come across this article sooner!
Passive income is something I’m trying to grow myself today but you have to admit, active income is usually a lot more and easier to get. A good balance would be using your active income to grow you passive income because when you’re stable enough, financial freedom is just a mile away.
Glad that you loved the article and I am happy that I could help.
Agreed, active income is more easier to attain, but in the long the rewards of passive income far outweigh that of active income.
This is exactly the way I would recommend for people to get on the active income side. Use your earned income and invest in a “vehicle” of passive income. Slowly you are making the shift and over time it will gain momentum.
And with an awesome training platform and tools, that don’t break the bank, this transition can made. Its just a matter of having the drive to go ahead with it.
Thanks for stopping by
I like your detailed review and explanation of the passive income and active income. And I believe everyone, including myself, will be eager to get a passive income stream as a long term goal. But most of us just forgot the effort we have to pay at the beginning before we can really get a passive income stream stable and sustainable. So I think no matter passive or active income, we still need to work hard to make it work.
Thanks for your sharing
Yes, I think it would be awesome if everyone had their own stream of passive income working for them. As you mentioned, it certainly is hard work, sometimes harder than following the active income path but the rewards are far greater.
Fortunately, these days there are some great training platforms that can allow us to realize this dream, without breaking the bank and still able to perform our day job.
The only piece of the puzzle that is missing is the person’s will and determination to go forward with it.
Thanks for stopping by.
Great article, thank you for clarifying the difference between active and passive income. People think that active income (9-5 job) will give them security, but that is not true and you explained it very well. One of my colleagues gets fired after serving the company for 25 years. That is really sad. She helped to build someone else dream and has forgotten on her own.
To answer your question in which category am I, I am in the active income group and have started to build an online business for passive income. You really inspired me and motivated me with this article.
Kind regards, Tamara
Active income, in my opinion is a “false” sense of security for many. I too, am a victim to this statement.
As you mentioned your friend lost her job after dedicating 25years of her life to it. It is only when this happens to us, that we then realize how we have been bluffed into believing that we were okay with our jobs.
I am happy for you that you are taking the necessary steps in the right direction and have no doubt in time you will find that it is the best move that you have ever made.
Glad to have inspired and motivated you.
I love this article.
This is exactly the way I would recommend for people to get on the active income side. Use your earned income and invest in a â€œvehicleâ€ of passive income. Slowly you are making the shift and over time it will gain momentum.
The only piece of the puzzle that is missing is the personâ€™s will and determination to go forward with it.
Thanks for the comment.
That is precisely the way to go. To use your earnings from the Earned Income side and invest it into the Passive Income side.
As you said, it requires a change of mind set, hard work and the will to stick with it.
All the best to you.
Very nice website with an alluring name. I have been dreaming of passive income for many years now.
I have achieved a small amount of passive income each month but have decided to start an online business to grow more passive income.
Starting an online business is hard at first and takes a lot of work but it will pay off in the years to come later down the road.
You have a lot of helpful information here to help me along the way.
Yes, earning a passive income online is hard work and takes commitment and dedication. As you mentioned, at the end of the day, it is all worth it.
Do stop in from time to time, as there will be more information uploaded here on a regular basis.
Thanks and all the best in your quest to earn more passive earnings.
An interesting and informative post. I wondered myself which was the best approach to go with. I have chosen the active approach having built a website and filling it with posts. I believe that staying active and posting will get a following and this will grow and grow as I built up my site.
I wondered therefore whether after I have my website up to a certain degree if it would be best to create a passive website? This second website I was thinking could be connected with my chosen niche. I could then see which one does work best. But I feel I would keep the original active website. Not only because I have worked so hard on it but also I believe it will be a big money earner.
oh gosh, its so plain to see why we need passive and not active income when you break it down so simply.
None of us want to be slogging our guts for the rest of our lives but many of us are too busy slogging that we don’t have time to pause and realise what cycle we are caught in.
Thank you for your great article that opens our eyes to the possibility of passive income and the positives it can bring!
You are very welcome. All the best to you, wish you tons of success in your online journey.
Kind Regards and Take Care