Active Income Vs Passive Income

Active Income is when you work, you get paid. You don't work, you don't get paid. Basically, you only get paid for the personal effort that you invest and your payment is one time.

For exampe, you may work 40 hours in a week and you will be paid by your employer for exactly 40 hours. Another words, you are trading your time for dollars. This is often referred to as sweat-equity. If you want to earn only active income, you can simply just get a job. But, having a J.O.B. (Just Over Broke) will never provide you the time freedom and lifestyle you are searching for.

Passive Income (also referred to as residual or recurring income) is when you work once, but continue to get paid over and over again. In other words, you do the actual work one time, but you are paid repeatedly for that work. The income continues to be generated after the initial effort has been expended.

For example, let's say you work in January and you produce a certain level of results. With passive income, you will be paid on those results in February, March and every month thereafter. This is the continual payment for work that was completed in the past. With passive income, you can make money even while you sleep. Do you know that it is also possible to make money even though you are no longer alive? Recently, Forbes.com reported that Elvis Presley is the top-earning dead celebrities with US$49 million in year 2007. In the second place came Beatle John Lennon with US$44 million. This concept is incredibly powerful!

Where is your largest source of income currently coming from? If it’s active income, what happens if you lose your job? How long can you survive? Most people think that losing their job only happens to someone else. What about if you become ill and can no longer work? Who looks after you then? You must assume that any source of income could dry up at any moment. Instead, you should start working towards creating multiple source of passive income for yourself and your family. When is the best time to create passive income? The answer is while you still have the ability to earn active income because having passive incomes helps protect you against the potential impact if you lose your job.