Income is simply money earned, right? But that's not it. There are two income types: one is active income, another is passive income. This post will state passive income vs active income discussion, and then you can plan your asset generation plans for upcoming years. So, without much ado, let's dig deeper.
What is Passive Income?
Sipping a tropical drink on a beach on Tuesday afternoon is still a distant dream for many. On the other hand, many nomadic are living that life.
Hold on, we are not talking about a vacation here but the ability to do something you love without running after (or out of) money. You might want to care for sick animals, become a paramedic, or work in an NGO.
Although, following your passion may empty your pockets. But, what if you can plan your investments well, live on the money you get from the interest or returns, and follow your dreams? It's possible with passive income.
Passive income is money earned without direct physical or material participation. However, that does not mean you do nothing and get the wealth. It's not a 'get rich without doing anything' kind of scam. It's more like having income-producing assets that don't require physical or mental participation daily. Yet, you have to make an initial investment to get the results.
For example, when you create an affiliate site, you have to write blogs or create videos and upload them on respective platforms to earn money when someone else makes a purchase. You might earn while sleeping, but you must put some work into it.
1. Flexibility of Time and Location
With passive income, you don't have to catch a train, go to an office, and work 9 to 5. You can do whatever you want to with your time. You may become a digital nomad, keep generating assets remotely and earn slowly and steadily. A popular phrase states, 'time is money'; in passive income, it opts and is 100% true.
2. Generate Extra Income
Passive incomes aren't for only those who want to chase the mountain ranges or travel the world. If your job isn't paying you well or you want extra income, this can be the best thing for you. You won't have to worry about the bills, EMIs, or anything else. You may work full-time, get passive money and create a luxurious life as you want.
3. Dream Chasing Opportunities
The sky is the limit when you nail the passive income generation hacks. You can do anything you want with time, freedom, and money.
4. Lower Tax Rates
Passive incomes and assets have lower tax rates for long-term investments. Check different qualifications from IRS's guidelines for passive income.
1. Less Security
You may or may not have control over the earnings. Sometimes stocks and shares crash and may not yield the expected results. However, you can plan well, diversify your financial portfolio, and sustain in bad times.
2. Needs Patience
You can't expect the earnings within a night after investment. You need to wait and keep on adding passive assets to your portfolio.
3. You're On Your Own
Maintaining passive income requires motivation, tolerance, and dealing with aloneness. You won't have a colleague or boss to discuss your difficulties. Surely you can hire a financial advisor or a consultancy, but all the benefits and losses are yours. You are solo in this journey.
Examples of Passive Income
- Affiliate Marketing
A high-traffic website that does not require daily or constant content creation may get income through affiliate links. You might also get ads on the website and earn through them.
- Renting a Property
You can rent your old property or a room in your home and get passive income. Even renting a parking spot or garage is considered passive income.
- Cash back from debit or credit card
The free money you get from the cash-back credit cards can serve as passive earning. However, in this, you have to spend money to make money. But it's just a reward, so there are no tax implications.
- Having intellectual property
Intellectual properties are courses, books, an app, quality photos, and more. You may earn royalties when someone purchases your creation.
Passive Income Ideas You Can Implement Immediately
1. Buy a rental property
2. Make money through blogging
3. Become an Instagram content creator
4. Sell photos on websites
5. Rent your car
6. Rent the spare room, garage, or parking spot
7. Buy and sell websites
8. Earn through online shopping
9. Sell your painting or designs online
10. Start a YouTube channel
11. Sell NFTs
12. Earn royalties
13. Sell podcasts
14. Record audiobooks
15. Buy and sell stocks
What is Active Income?
Active income is the salaried income you get after working for a job or providing service to others. It can be a 9-to-5 job, self-employment, freelancing, business, or anything else that requires you to take active participation to make money.
In this, you may get an hourly fixed wage, monthly salary, or income from services or products you provide. You are bound to invest your time daily, and if there is no active engagement, you may stop getting money.
Many individual investors use their savings from active income to generate passive income and free themselves from working every day.
Examples of Active Income
Active income generation is usual among everyone. All doctors, financial advisors, government servers, and small business owners receive active income. Here are some examples of this income type:
- Hourly wages
- Sales commissions
- Earnings from providing services and consulting services
Active Income or Passive Income: Which is Better?
Active income requires you to put effort daily or consistently. Whereas passive income may let you utilize your time and location as you want. You become a free bird and don't have to work for someone else to pay your bills. That’s the difference between passive income and active income.
Some people work a 9-to-5 and side-by-side work on their affiliate websites or save to buy land or property so one day they can leave their job and take early retirement or chase their dreams.
You might be a person who loves a routine and never minds working for others and generating active income, or you might want to travel the world, experience the zest for life and new cultures, or help an animal shelter. Anyway, whatever your preferences, you should choose that.
The Bottom Line
Owning a property and investing in real estate still tops the list of passive incomes. Compound Banc can help you do that! We make your real estate investing journey hassle-free through our different features. Log in to our portal and start building assets that may give you passive income!