In this content of ‘passive income vs active income,’ we will explain all the differences between passive income and active income. It does not matter how you earn money. All the incomes are divided into two categories: passive income and active income. Most of us heard about both income categories but do not understand the differences between them.
Passive income vs active income: Definitions
What is passive income?
Passive income is earned from an investment or work done in the past that continues to generate money with no additional effort. It does not matter if you are working or not, you will earn money from passive income sources continuously. Passive income streams will make money for you even you are sleeping once you set it up perfectly.
What is active income?
Active income is earned by performing skills in exchange for money. It means you will earn money as long as you are active. Money flows will stop as you stop performing. Wages, salaries, commissions and tips are examples of active income.
Importance
Passive income: We people want to earn extra money always to cover our daily expenses. Active income may not cover your daily expenses. That is why passive income is important. Passive income streams are more attractive as they do not require effort and physical presence continuously.
A passive income stream can turn things around for people completely. Just imagine, would you miss an opportunity of income that will generate continuously in the coming years in exchange for upfront work? With the best of your initial efforts, passive income can be beneficial significantly.
Active income: It is important as it allows you to earn money consistently and quickly within a short period. It is not uncertain like passive income. Active income defines the income period and amount that is helping us to budget our expenses. Moreover, active income forces us towards passive income.
Examples: Passive income vs active income
Passive income
There are so many ways of passive income out there. Some examples of passive income listed below:
- Rental property income
- Interests from deposits and investments
- Affiliate marketing
- Revenues from intellectual property
- Advertisement income
Active income
Active incomes are the income that we people earned usually. Here are a few examples of active income:
- Hourly salaries and wages
- Commissions
- Tips
- Consulting and freelancing
- Servicing
Key differences
There are many differences between passive income and active income. We have listed major differences down here:
Passive income
- Does not require effort continuously
- Does not require physical presence
- Money flows while you are sleeping
- Takes years to build the stream
- No fixed income
Active income
- Requires efforts continuously to generate money
- Difines income period and amount
- Money flows consistently
- Fixed income
- Requires physsical presence mostly
Which is better income option?
Obviously, passive income is far better than active income. Who does not want to earn money with no effort and work? Most of the peoples are looking for income sources that may suppress their daily or monthly costs. We all want to increase our wealth and the number in our bank balance. Passive income streams can fulfill our dreams. Passive income is the better option because you do not have to work and put effort continuously. Also, you are earning money when you are on vacation or sleeping. Sounds pretty right!
Of course, you should not ignore active income streams. To earn the passive income you must build the base and wait. To build the passive income stream you need to earn money to invest in it. Without active income, it is quite impossible to earn money to invest in the passive source. So active income is also important as it helps to layout the structure of passive income.
Conclusions
Passive income streams are may be attractive than active income streams. But both passive income and active income are important. Do not ignore any of them. An active income stream to bear your living costs while passive income streams to fulfill your dream life. A combination of passive income and active income can boost your lifestyle!
