Do you know what is active and passive income? You may be thinking income is income then why to differentiate, income just puts money in our pocket.
No it doesn't work like this because in india most of us know only one definition of income that is the payment or income that we get on monthly bases but there are other typesof income as well.
So, what is the difference between active and passive income?
Let's first see the definition of what is active income and what is passive income.
- Definitions:- Active vs passive.
Using Wikipedia I have given the definition of both Active and passive income below:-
# Active income:-
Active income isearned incomeincluding all taxable income and wages the earner receives for working.
Active income includes wages, self-employment income, and material participation in anS corporationor partnership.
# Passive income:-
Passive incomeis income that requires little to no effort to earn and maintain. It is called progressive passive income when the earner expends little effort to grow the income. Examples of passive income includerental incomeand any business activities in which the earner does not materially participate.
Active income is traded fortime and you get wages for it, so if you work for 1 hour you will get wages for those 1 hour and some days you get sick or due to some reason you took off your wages will be deducted.
Passive income requires upfront work and effort and you will get the benefit for rest of life like you wrote a book and published it then you will get the revenue rest of life.
- Why you should know difference?
So many times you would have dreamt of being financially independent and decided you will work super hard in your company or job and planned to save it but the reality is no onehas every became rich by just doing 9-5 job. Therefore you should know the difference between both income types.
- Pros and cons of Active income
Cons:- We have to trade time for money as time is limited then then the money will also be limited.And the most important thing is the mindset when they have monthly paycheck they get addicted to it.
We all have 24 hrs in a day and if we go by this method of active income we want be able to get significant amount of money before retirement.
- Pros and cons of passive income.
Pros:-
Once you have built a product or service , you can stop working and your revenue stream will continue from the efforts of the products or systemyou have built.
Cons:-
In the beginning you can go without getting revenue until your stream starts to generate revenue.
- Which is the best source ofincome ?
It depends on person to person what are there requirements someone wants security and doesn't wanna get out of comfort zone and others want to make money work for them and passive income can help them to generate huge cash flow that can help them to attend financial freedom and they can later decide to work or not to work on their wish .
- Can we have mix source of income?
My personal view is that it is better to have active income by your 9 - 5 job and you should also add additional streams by passive income that you can generate through side hustling.
You can put additional hours daily to build your website ,write e-book or to create some online course that if managed properly can generate passive oncome within few months and can add to your income pool.
- Why you should have both active and passive source of income?
Having mix source of income is most beneficial as it has stability of active income and freedom of passive income .So ,you can enjoy the pros of both sources by avoiding the cons.It is a smart strategyuntil your passive income stream doesn't cover all your expenses and as your passive income becomes equal to or greater then your current income then you can quit your job and can be truly called financially independent.
Conclusion:- The difference between both is that Active income trades time for money and 95% people earn by this type of income.
Passive income requires upfront effort and investment until its running once it done then it will generate positive cash flow for almost lifetime and you can make money while sleeping and that it will require zero to little efforts to handle.
