ALL YOU NEED TO KNOW ABOUT ACTIVE AND PASSIVE INCOME!
If You’re wondering about whether your income is Active or Passive but don’t know the difference? Well, let me help you out then.
What is Income?
According to Wikipedia, Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. In layman’s term, income is anything and everything a person earns. You might be getting a salary from the job or rent for your house. Everything is income. It is categorized in 5 heads-
Income From Salary:
It is the money earned by an employee from the job he/she is doing. It includes salary, bonuses, commission, retirement benefits, etc. For example, if I work at a government agency and I get compensation for 3500$/month, including all the allowances, then this money is the income I earned from my salary.
Income from House/Property:
I have been living in the same house for over 20 years, the house which was built by my grandfather. 2 floors of this house are rented to someone, and the rent I, therefore, receive from them is termed as my income from the house property.
Income from Business or Profession:
My dad is a businessman. He owns a shop in the mall, and the money we generate from that shop will be called his income from the business. Any person carrying on a trade whether incurring profit or loss is required to disclose in Income Tax return under this head.
Income From Capital:
When you sell any of your financial assets like shares, mutual funds, or any capital assets like house, valuable items, etc. then, the profit or loss resulting from these transactions need to be written down under this head.
Income from Other Sources:
My mother gives me a monthly allowance. Is that income? Yes, of course, it is money I am receiving from someone, then obviously it is an income though it needs to be listed under the head of other sources.
The above given were the different ways in which you can classify your income. Now the payment is of two types-
Active Income | Passive Income
What Is Active Income?
A popular encyclopedia for investors (INVESTOPEDIA) defines active income as the income received by performing a service which includes wages, salaries, commission, and income from business materials. In other words, it is the money you earn as a direct result of the work you put in.
The phrase “trading time for money” is used for active income. Most of the people in the world have active income as their only income.
Ways to Earn Active Income:
- Day jobs,
- Training jobs
- Consulting jobs
What is Passive Income?
“If you don’t find a way to make money while you sleep, you will work until you die.”– WARREN BUFFET
INVESTOPEDIA defines Passive income as the income derived from a rental property, limited partnership, or other enterprises in which a person is not involved that much. In other words, once you do a certain amount of work, money comes in without you having to do much further work.
As compared to active income, passive income is usually taxable.
If you are an individual or a group and are planning to change or start earning a passive income, you can read the following books-
- Rich Dad, Poor Dad
- 4-hour workweek
- The 100$ startup
- The 7% Solution
How to Make a Passive Income in 2020
- Stock Market: Investing is an excellent example of passive income. You invest money in company stock, and you receive a dividend payment and appreciation on the investment. The amount you receive depends on how much stock or share you own and how much profit was there to divide. You can earn as much as 3500$ to 5000$ a month provided the right knowledge and discipline.
- YouTube: This venture is proliferating. You can create videos about anything you want to- food, fashion, entertainment, teaching, etc. and then put them on the app. You can add Google Ad Sense to the videos, which will overlay automatic ads. Daniel Middleton owns a gaming channel on YouTube and has 21 million subscribers, and his earnings are as high as $16.9 million.
- Blogging: “Blog” is an abbreviated version of “weblog,” which is a term used to describe websites that maintain an ongoing chronicle of information. A blog features diary-type commentary and links to articles on other websites, usually presented as a list of entries in reverse chronological order. Blogs range from the personal to the political and can focus on one narrow subject or a whole range of issues. You can start writing on anything you like- technology, food, travel, etc. If you are not too much into writing, you can either buy a blog or hire a freelance content writer to work for you.
- Affiliate Marketing: When it comes to making money online, affiliate marketing is a skill-based approach that could be learned by anyone. It is one of those segments of the online world, that doesn’t require any degree or formal education. Affiliate marketing is one of the oldest forms of digital marketing, wherein you refer someone to any online product. When that person buys the product based on your recommendation, you receive a commission. Every big company like Amazon, Apple, Google have an affiliate program, which is free to join by any individual across the globe. You can create a niche website, write product reviews on websites or blogs, or even create an email list to send messages to your subscribers to sell products and services.
- Selling your Skills: Do you have a thing for something in particular like Photography or teaching etc. then, you can sell this skill online. You can post your Photography on websites like Shutterstock for people to buy where one picture is sold for as high as 50$-500$. The only key is to keep uploading images of high quality. If you like to write, then you can publish an e-book on Amazon Kindle publisher or if you as you can even get it published offline. If you enjoy teaching, then you can do a course on whatever subject you want to and sell it on online platforms like Udemy, Coursera, etc.
- Drop-shipping: Drop-shipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product using the drop-shipping model, it purchases the item from a third party and has it shipped directly to the customer. As a result, the seller doesn’t have to handle the product directly. The biggest difference between drop-shipping and the standard retail model is that the selling merchant doesn’t stock or own inventory. Instead, the seller purchases inventory as needed from a third party—usually a wholesaler or manufacturer—to fulfil orders. You can start by creating an account on the popular drop-shipping website Shopify.
- Buying Real Estate: This falls more in the category of a semi-passive income since an investment in real estate is always a little bit on the active venture side. Still, once you have a property that is established and fully rented, it’s mostly a matter of managing the property and keeping it performing well, which can be done by professional property managers. According to Brandon Turner, an active real estate investor and co-host on the popular Bigger Pockets Podcast, The key to success with rental properties is buying smart. Not every property is going to provide a good return or prove to be passive.
- Build an App: Apps can be an incredibly lucrative income source. Think about how many people today have smartphones. People download new apps every day. If you know to program or are willing to learn it then, you can build an app entirely on your own, or you can hire an external developer to make the app on your idea.
- Digital Advertising: Digital advertising is the process of publishing promotional material through online platforms such as social media, search engines, websites, and any other program that can be accessed digitally. Consumers are spending the majority of their time on the Internet, so digital advertising helps you take your business directly to where your audience is. But how do digital ads work? They leverage the popularity of trusted sites like Facebook, YouTube, Yelp, Google Search, and more. To deliver services to their customers, they sell you ad space on their websites. When you advertise on a platform, you are in effect supporting that platform that your customers love.
- Network Marketing: Network Marketing is based on the power of compounding. Network marketing is all about doing continuous hard work and getting compounding results over time, which is not possible in a JOB. It is the industry of patience and confidence. No MLM can make you a billionaire overnight. Network marketing is the industry of Hardworking people only. Remember one thing, joining an MLM doesn’t make you a millionaire, but believing in yourself and doing continuous hard work will help you to achieve your goals.
I am sure you can do at least 2-3 out of all the methods listed above. Just remember one thing you need to be patient to get the fruit of your hard work or smart work.
So, Which One is Better?
I think the answer will depend on everyone’s unique situation. If you need the money to come right away, an active income is the best way for you to go. In fact, for most people starting, an active-income is probably the fastest path to get paid, build a financial cushion, and improve balance sheets.
It has a lower risk as compared to passive income as an individual is not risking any capital.
It is more predictable because the person says an employee knows when he is going to get his salary, which in turn makes the monthly budget to be planned out in a better way.
On the other hand, if you are someone trying to escape the 9 to 5 job, then you should go with the passive income. It frees up your time, allowing you to work anytime and from anywhere. It reduces future anxiety, which occurs in the case of active income. Passive income also provides you with financial stability so you can settle down easily.
Today we have learned Everything about active income & passive income but that’s not only the factor to fly high in the sky. “Ground of Success” provides you with the best articles for you to feed your mind & to become successful not in your domain but your life.