Passive vs Active Income: An Astonishing Comparison

by Jun 2, 2020Achieve Financial Independence, Uncategorized0 comments

When it comes to income, you would think that if you work hard, your income will increase along the way. It may be true, or it may not be. But earning income by getting yourself a full-time job or a part-time is not the only way to fund your living.

Whether you realize or not, there are instances where you have to do the work and get the income later or at a particular time. On the other hand, you do the work once, and even if you left alone the things you do, you might still get the income even when you sleep.

Sounds too good to be true? I know, I used to be very confused and not believing in it other than getting a job.

But it is a matter of priorities and what kind of income you would prefer to earn in the long run.

There are these terms called “active income” and “passive income.” So,

What is active income and passive income?

Simply put, active income means you have to do the work to get the income, and if you stop doing the work, your income will stop as well.

Meanwhile, passive income is when you earn money regardless of whether you do the work or not. Of course, for a start, you do need to do the work first, like for instance, creating blog posts, writing an eBook, or hosting a new online course. But once you set that up and let people know about what you do, you can sit back and watch your sales coming in at any time of your day.

That said,

What is the difference between passive and active income?

This is a very straightforward question. Simply, it depends on the amount of work and time you spend on getting your income.

In the case of active income, you need to perform a work first in exchange for your income. An obvious example is a full-time job. You work on a certain amount of time per day, and when the end of the month comes, you get the paycheck. Long story short, you trade your time for money. 

The great thing about having a full-time job is that you get a number of benefits that the company covers, including insurance, retirement contribution, and so on. Such benefits are more appealing among the majority of people, particularly fresh graduates.

At the same time, if you are planning to stop doing the work or quitting it, your income will be stopped too. You don’t have much control over the amount of salary you will receive as you are working for someone else.

You might not realize that you are working for a business or company, which means by default, the business owner (or employer as people would call it) always has the final say in determining the salary payout. He or she can also choose to fire any employees to save business costs. So, this is something that you can’t control when you are working in a full-time job.

On the other hand, if you intend to earn passive income, you do need to do some work in the initial stages, and it may be different from what you do in your day job. In this context, you are going to create something that people would view it as relevant and valuable, which they are willing to pay for it.

In the beginning, you may have to try certain things and see if it works out in your favor. Some will work; some will not. It will take a bit of your time to figure out which is the best for you. In other words, you are creating an asset that will have the potential to bring you income in the long run.

Of course, you won’t get covered by the benefits of a full-time job since no one is hiring you! You are your boss, remember? You decide on how you would want to get yourself several income streams, or just an income. 

But at the same time, it can be overwhelming at first to decide which works for you. This requires your determination to keep trying, and once you found out which works best for you, you maintain it however you want.

The great thing about this is that you are not limited yourself to a single source of income. You get to diversify your income base, so even during the downturn (like this pandemic, for example), you are still able to earn income in a way rather than treating it as a zero-sum game. Also, there are many ways to create an asset and provide value to your audience or potential clients. Therefore, it is entirely up to you to choose which one resonates with you :).

Does this mean I should only focus on passive income?

As much as I want to say yes, it really depends on you. I never said that getting a full-time job or doing busy work is wrong. If that is what you love doing the most, then, by all means, do it!

I know some people prefer to do work on specific timings so that they can keep themselves active and feels more fulfilling.

On the other hand, if you want to focus on diversifying your income base, you would want to focus on earning passive income rather than active income. Sure, you may want to get hired on multiple jobs simultaneously, but you may get tired or not have the time to do something else that matters to you the most. Focusing on creating passive income means you can do so entirely online at anywhere and anytime you fit the most. There’s flexibility in earning passive income.

To wrap up

There is nothing wrong with earning either active or passive income. It largely depends on your preference. But one thing for sure: you should not depend on a single source of income for living. It is best to diversify and earn multiple sources of income.

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