Active vs. Passive Income

What are the differences between active income and passive income and what are the pros and cons of each?

In this post I will define what active and passive income are, give examples of each, and describe their main differences.

Active Income

Active income is any income you earn by exchanging your time for money.

A salary or hourly wage would be an example of active income. You are paid for each hour you spend doing something.

Basically, any income that you must be actively present to earn is active income.

Ways To Make More Active Income

There are only two real ways to increase active income. You can either get paid more for the time you work (get a raise) or work more hours.

If you’re looking to increase your active income check out “How To Negotiate Your Salary” or “Finding Your First, Second Income.”

Passive Income

Passive income is what I like to call “income on auto-pilot.”

Once streams of passive income are in place, you just sit back and earn, even while you are sleeping.

But How?

One example would be writing a book. Once you have written a book, anytime someone buys that book you make money.

For the rest of your life you could get checks in the mail from people buying your book, without spending a second of your time on it once it has been published.

A second example would be investment income. Your money can earn you more money while you sleep.

Once you make your investments you are good to go. You do not have to actively put time into the income you receive.

Not everyone has the time to write a book or the money required to earn serious investment income. If you’re interested in other ways to earn passive income check out 5 Easy Ways To Start Making Passive Income.

Pros and Cons

Active Income:

The best part about active income is that it is synonymous with instant gratification. You can go out today and make money with active income, you just have to put in the time.

Active income is generally reliable and allows you to make money whenever you are willing to put in the time.

The downside is that active income is inherently limited by time. You only have 24 hours in a day and so there will always be a ceiling to your earning potential with active forms of income.

The fact that you have to exchange time for this income is also a downside. No point in being a millionaire if you don’t have time to enjoy it.

Passive Income:

The main pro for passive income is that it does not have a ceiling. Another pro is that once a passive income stream is in place it doesn’t take your time.

The downside to passive income is that the most lucrative streams of passive income take a lot of upfront effort to create.

Writing a book or starting a business that can later run without you is no small feat.

Set Your Goals

Now that you know the difference between active and passive income you can set your goals around increasing them both.

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