No matter how you make an income, the money you make will always fall into active income or passive income. Is your income active or passive? And is one more important than the other?
If you are wondering what the difference is or you heard it somewhere and didn’t really understand, this episode is also for you.
I came up with a simple way to differentiate between active and passive income. Active income means you are involved in an activity which requires your energy and time to earn income. Whereas, passive income is an income you earn with little or no effort required and even to keep earning.
The salary being paid from a 9–5 job, the commissions on sales, the consulting or coaching services are all examples of active income streams. You stop earning from them when you stop taking active part in them.
One trending myth about passive income is that once you press the button, you will relax on the bench and keep earning forever. Let us take one passive income stream for example which is the Real estate investment.
After building a house and renting it out, you will be earning from rents monthly or yearly. That landed property keeps depreciating with time. Some equipment in the house may start to malfunction which will surely require some fix to keep the business running. If it’s not renovated, it will decrease in value or may likely crash.
So which income stream should you chase?
To be truthful, passive income is better than active income. If you have an income stream than generates money for you without your presence, it means you have the freedom to go anywhere and at any time you want. That is stunning!
But before you built your passive income stream(s), you had to work for some money to take care of your basic needs while investing part of that money into making your passive income streams successful.
To round up this episode, active income is the foundation for you to make passive income, so don’t miss it. It plays an extremely important role and passive income gives you financial freedom. So chase both and focus on the fundamentals first.
If you want to know more about passive income, I recommend reading Rich Dad Poor Dad by Robert Kiyosaki.
