Passive or Active Income: What And Why Is It Better To Choose

Written by: smm

on: 15/03/2023

Five-year research was done among 233 wealthy people. All of the participants were millionaires who managed to strike it rich on their own and earned income from different income sources. Basically, 65% of them had three streams of income, 45% had four and the remaining 29% had five and more streams.

These figures suggest that when it comes to creating wealth, it’s not just about making the right choice between passive and active income. 

You earn active income in exchange for your time, skills, and expertise, while passive income is earned through simple ownership of money-generating assets. Having both is an excellent way to make money.

Here are the pros and cons of active income:

— It enables you to gradually improve your skills and broaden your experience

— It provides for social interaction

— It is time-consuming

— Scaling potential income is not possible

— A major chunk of profits resulting from your work goes to the employer 

And here are the pros and cons of passive income:

— The money is  generated while you sleep, rest, or do other things 

— You get more time to relax and unwind 

— You can scale potential income

— You don’t have to actually be at your workplace  

— Typically, you must have an active income first 

— It may be harder to build as compared to active income 

Types of Active Income:

1. Salary

This is the main—and probably—the most obvious type of active income you earn at your regular job. That being said, you run the risk of losing it at any time due to the layoff or staff cuts.

2. Bonuses and wage supplements

Many job positions offer bonuses or commissions that goes with the basic salary. However, this type of income isn’t fixed and may fluctuate greatly depending on the type of work you’re in charge of.

3. Consulting and freelance

What you are paid for freelancing jobs and consultations may constitute 100% of your income, or be a side gig. It’s up to you. People who possess valuable skills can often build their own businesses by selling their time in specific short-term or long-term projects.

4. Capital growth 

Purchasing or selling certain assets—like stocks or real estate— can be a great way to grow capital provided that the asset selling price is higher than the initial buying price.

Types of Passive Income:

1. Bank deposit 

One of the most popular ways to secure passive income is to make a deposit for a certain period of time and earn interest on it. That said, you need to look into available market offers and the bank’s rating. Plus, to earn a decent interest, you will have to deposit a large amount of money as well. Otherwise, it will be pointless.

2. Income from rent

You can rent out an office space, photo studios, cars, special equipment, and clothing. However, this income can be made entirely passive if you hire the staff that will tackle all relevant work which may entail managing and maintaining the property, running ads, dealing with lessees, loan providers, investors, etc.

3. Online training course 

For this, you will have to package your skills nicely to sell them to your group of clients. This may seem harder and more intimidating than it actually is. All you really need is your computer and relevant app.

4. Social media

This essentially boils down to content monetization based on the number of clicks, likes, ads, and referral links. To make decent money on social media you need to have a large audience and post at least three times a week to stay relevant. 

5. Company stocks

By buying stocks, you basically gain the right to a share of a company’s profit. That’s why this can be a great option if the company is evolving dynamically with its stocks going up in price.

6. Forex

Investors can receive an effortless income by entrusting seasoned traders with the management of their finances. The key is to pick a really competent person as the size of your further profits will depend on how professional they are.