Active Income Vs Passive Income – All You Need To Know

Last updated on September 21st, 2024 at 10:28 am

 

Let’s understand active income vs passive income and how it applies to our lives regarding financial independence.

These are the types of incomes that you need to know if you want to clearly define your income streams. And you don’t have to take ages to distinguish the two, that’s why in a few lines below it’s all going to be well.

The key questions that are to be put right include;

1. Define active income
2. Forms of active income
3. How to make active income
4. Define passive income
5. Forms of passive income
6. How to make passive income

The best you can do right now is to take your time to read through to get covered fast. So, active and passive incomes are the two main incomes that must be particularized here.

Wanting to know how they differ? This is all going to be covered in a few lines as you wish.

What Is Active Income?

This is money that you earn when you actively involve yourself to offer a service at a given time. Some of the different categories of active income are salaries, hourly wages, and commissions.

I don’t know where your income comes from but I hope you can now tell where you belong now. It’s hard for me to talk about passive income first without mentioning active income.

Active income is what makes passive income that you’re going to earn now or in the future. You can’t easily earn passively without getting actively involved to offer a service in the first place.

Active income is therefore very crucial when it comes to financial independence in life. That is why if you’re to keep growing your passive income portfolio you have to keep depending on your salary, hourly wage, or commission.

Honestly, passive income streams mostly take time to pay you back compared to active where you earn quick money.

When you have an interest in investing, you’ll start small with no income earned at the end of the day or month.

If buying shares is your plan, for example, it will take you some time to accumulate those shares that can earn some good money passively. And what facilitates the process is the active income that you earn to help you create a passive income stream.

If you’re looking forward to earning a passive income while at the beach then you have to actively hustle hard now.

The Different Forms of Active Income?

• Hourly Wage

This is one of the widely known forms of active income ideas since most people are into types of employment that pay hourly.

Depending on your schedule it’s up to you to do it full-time or part-time and here you’re performing a service to earn. You can earn this way for example with food delivery apps like UberEats and Doordash to get paid.

Hourly wage gives one the flexibility to do other productive things compared to the 9 to 5 job where you have to full time.

• Salary

Do you have a 9 to 5 job where you get paid for your effort to offer a service? And of course, you earn a salary, then that’s active income that you’re earning.

You physically get involved in performing a task as specified by your superior in the job description. Also, you earn a specific amount of income every after period that is a month or every after two weeks.

• Commissions

When you’re actively get involved in making sales you earn active income in terms of commissions. If you’re good at sales and marketing you can make a lot of money with commission-based gigs.

The more sales you make or the bigger sale the higher the amount of money you earn and the opposite is true. In case you’ve ever worked for a commission you know what it takes to earn.

I made some commissions working for an insurance company way back but the more clients you close the better your earnings. And the bigger the business the more commission you earn.

You don’t need to have huge commission rates with big businesses to earn well but with small businesses it’s vital.

• Tips

Tips are a form of active income since you actively and physically get to perform a service to be given a tip. Normally tip is given as an appreciation for a service well done and not part of salary or commission.

So, because you perform a service to earn it’s a form of active income. And irrespective of where you work but with good performance, you’re likely to get a tip.

Ways to Earn Active Income

• Freelance Writing

It’s a type of work-from-home engagement that earns you an income joining sentences. You can get paid writing for blogs and any other would-be-interested platforms that want your skill.

• Virtual Assistant

Here you offer a service remotely to the other party say an organization or an individual. Sometimes virtual assistants are known as administrative assistants due to their roles in service provision.

Some activities done by virtual assistants include managing online engagements like emails and meetings.

• Flipping Items

This is another way you can earn money today by buying items and then reselling them at a profit.

Some people look around for things online that they think are selling cheap and then buy them for resale at a profit.

• Completing Surveys

Online surveys are active income ideas that can make you some money as side hustles.

You’re given surveys to complete about different brands and the more you complete the more points you earn.

Points are converted into either gift cards or PayPal money in most cases. This is active income since you have to work on surveys to earn money in your spare time.

If you, therefore, want money fast then you should do things wisely towards the forms of active income. It’s this very money that you earn as active income that helps you get a pretty good living today.

But also, you can use it to prepare for a passive income lifestyle that you wish to have in the future.

What Is Passive Income?

This is where you earn income with very little or no effort by actively investing in the income-generating asset or activity.

It’s the most preferred type of income between the two since everyone is working hard to achieve status. Getting a passive income isn’t easy to achieve without active income in support to build it.

Everyone has a dream to earn in the future doing little to nothing at all and that’s why he or she is working tirelessly today.

A passive income mindset, most people get it from the very first day they start working. It’s full of ups and downs sincerely but what to do?

And it’s the process that one has to go through to make it there, nothing comes easy.

Do you want to create an income source that will reward you for the rest of your life? then you have to pay price.

There’re lots of passive income ideas that you can involve yourself in out there to start building your portfolio.

And like said to be successful it requires time and active income for you to make a passive income source to surely reward you.

Some of us find it hard to invest time and money, hence bored by the strategy along the way, and then give up. But realistically the outcomes of the effort input are worth it despite the challenges.

The Different Forms of Passive Income

• Affiliate Commission

You can make money while sleeping with affiliate marketing whenever someone buys through your referral link. it’s also among the most preferred forms of passive income ideas in online marketing.

Affiliating marketing can be done on different platforms for example blogs, business websites, and podcasts. And the more audience you get using the best strategies you invested the more you’ll earn in the future.

You don’t have to be an expert to start making money with affiliate marketing or maybe sign up with affiliate programs.

All you need is to invest in a good strategy that will enable you to earn a passive income. The affiliate links in my blog that you may click to make a purchase earn me money in form of commission.

It’s at no cost to you purchasing through my link and this pays for the hard work I in put before. So, it pays me out while doing nothing but making money online throughout the lifetime of my blog.

Affiliate commission is passive though it’s all through hard work.

• Rental Income

When you have rentals the money you receive from tenants is known as rental income. This is considered to be both passive and active income since it involves the maintenance of a property.

You have to invest some good money and time in putting up rentals that will pay you passively. Like any other business, you can’t expect things to be good all the time that’s why earnings keep varying.

And tenants are sometimes not reliable but when you have a good number of rentals you can’t fail to get a cheque. It’s money that keeps coming throughout for as long as you live without much hustle in earning.

• Interest Income

There’s no way you can talk about passive income examples without mentioning interest income. It’s passive no doubt because the money invested in the assets or savings earns you interest without putting in any effort.

You can use your active income to create a very nice portfolio of interest-paying investments like dividend stocks or bonds. Dividend-paying stock can make you some good money every month or quarter that can sustain you for the rest of your life.

There’s a fellow blogger I know who’s also an investor and a trader currently earning over $20000 per month just interest income. And that’s what is called earning passively doing nothing when your investments are paying.

There’re very few people earning that much yet actively participating in a 9 to 5 job. Don’t forget you have to put in the work to get to that level of passive income earning and financial independence.

We all wish to be there but are you ready to walk the journey today with discipline? Because without discipline you can’t achieve a passive income status that’s the fact.

• Display Advertising

Earning passively using display advertising is a very common form of passive income in today’s modern world.

People with blog sites having large audiences are killing it through this process. Their invested efforts are rewarding them now and in the future with little to no effort input now.

Also, with display ads, you have to put in the work in the first-place driving traffic to your site. Some sites and blogs have over 500000 page views per month and companies pay between $3 to $25 RPM.

The revenue per thousand views depends on the company you’re using. And the higher the RPM the better your earnings at the end of the month, it’s completely passive.

If you want a passive income where brands advertise on your site then display ads are the type. But it takes time to make some good money out of it like any other form of passive income.

Interested in quick cash? The active income can work for you better than this to earn. Display advertising is a slow process but a nice way to earn a passive income doing nothing or when out for a holiday, it pays.

 Ways to Earn Passive Income

• Dividend Stocks

You can buy shares of dividend-paying stocks and invest in good companies to earn interest income.

Payments could be made every quarter or at the end of the year. The number of shares you own will determine the dividend share you receive over time.

And passive income you receive with dividend stocks doesn’t require you to participate in any activity apart from your investment. So, here most of the work is done by your financial advisor or brokerage firm.

That’s why you have to decide wisely and also contact a financial expert to advise on any investment decision.

Heard about ETFs? These are exchange-traded funds; you buy a basket of companies and these have minimal risks compared to a single company.

• REITs

Real estate investment trusts are another way through which you can earn passively. You can buy shares in a company that manages real estate to earn interest income.

Some people are making good money passively with real investment trusts. You just chill at home waiting for that time to earn money depending on your total investments without moving up and down.

Whichever way you want to invest it’s upon you whether, in individual REITs or ETFs, it’s all open. But don’t forget to contact a financial expert in case you’re to make an investment decision to avoid losing money.

Reits are a great way to earn passive income when you do things correctly but you have to invest more to earn huge.

• Blogging

This is a common money-making business nowadays whereby you just choose a preferred niche and then start stringing sentences.

With blogging, the trick is in making sense of what you’re writing about and traffic. Many bloggers’re earning an income while sleeping at home due to good content that’s engaging readers.

You don’t have to be an expert in writing all you need to do is to have passion and consistency to grow the blog that will pay you passively in the future.

As usual, it doesn’t happen in a night it takes some time to get big results out of your effort. So, if you’re fine walking the journey trust me you can achieve and live it no doubt.

• Affiliate Marketing

This is promoting other people’s products online on a given platform either a blog site or social media platform.

You’re given a referral code to use on your platform by the owner of the product or service. And when people click through and make a purchase you get paid a commission.

This affiliate link stays on your platform for as long as you want and hence earns throughout its lifetime. It’s passive income that you earn doing affiliate marketing because you get paid for the effort you input way back.

Some of the widely known affiliate programs that blogs and sites use include Amazon, worrier plus, ShareAsale, JVzoo, and others.

Therefore, if you have enough traffic to your platform, you can bank with affiliate marketing. This is how a lot of bloggers are making big money since content and traffic is the limit to your earnings.

It’s however believed by most people that when you start earning passively then you’re financially independent. This is because there’s little to no hustle required for one to earn an income. Getting paid without working, it’s an achievement in life.

And this shows how disciplined you were with your active income which builds a passive income lifestyle.