Active Income vs Passive income

Active Income vs. Passive Income

Introduction

As we all know, Learning is equals to earning, and learning about earnings and cash flow helps you to grow your financial literacy. If you don't know about the types of payments, how will you be financially free?

Financial literacy is the essential thing that traditional schools don't teach you. But all we gradually learn that money is one of the fundamental requirements for living.

All of the incomes can be classifies into two distinguished categories- a. Active Income b. Passive Income. Like any other thing, both of these have their pros and cons. Active income will provide you a financial cushion to relax, and passive income will offer you financial freedom. Both are very important to create a successful portfolio. It would help if you stacked up both of these with your intellect sorting to build your successful empire.

You may already know the primary difference of earnings, but here in this blog, we present a complete guide basic to advance level about different types of income. We also explained the cash-flow quadrant, the Importance of varying income types, and busted all the myths you may hear about both earning streams. You also can explore 100+ earning ideas, to begin with.

So, let's get straight into it-

A Few Basic Terminologies

Before we start with the different income categories, let's have a sneak-peak on three different terminologies related to this topic, to get the proper understanding. These three topics are- 1. What is Income or Earning? 2. What is an asset? 3. What are Liabilities?

Income/Earning – Income is something one individual or an organization earns in exchange for their services, time and investment, Etc. It can be categories into three kinds- Active Income, Passive Income, and Portfolio Income (It also lies in Passive Income).

Asset- Asset is an economic entity owned by an individual or an organization for future benefits. In simple words, an Asset is what puts money in your pocket.

Liabilities- Liability is the financial obligation that an individual or a company owes to other parties. In simple wording, liability is what takes money from your pocket,

"Rich people always acquire assets but poor, and middle class acquires liabilities that they think are assets." This is one of the vital lessons from Rich Dad Poor Dad. This is why it is essential to know assets and liabilities before you depart for a journey of financial freedom.

Now, let's discuss different types of earnings. As we discussed above, there are two types of Income- Active Income and Passive Income. All the incomes you earned from various sources are either Active or Passive.

A Quick Overview in Different Types of Income

Active Income – Active Income refers to the hard-earned income in exchange for performing a service that requires an individual's active participation. In Active income streams, you trade your time to make money.

In simple words, you work for money to generate active income. Most people in the world make their livings through active income because it is significantly less risky and produces a result of your effort faster than other approaches. In other words, your input of efforts is correlated to output.

Passive Income – Passive Income is the earning by controlling assets or work done in the past, requiring significantly less or no active involvement. In other words, Passive Income is the earning from a system you have created where you put effort initially, but in the future, the system works for you and generating revenue for you.

Passive income is also known as a holy grail of income streams that puts money in your pocket while sleeping. As Warren Buffet quote," If you don't find a way to make money while you sleep, you will work until you die." This is one of my favorite Warren Buffet quotes, which teach the essence of passive earning.

Portfolio Income – Portfolio income is an earnings generated from your investments, dividends, interest, and capital gains. In other words, Portfolio Income is something where money works for you. It is also a kind of passive income where your assets are compounding and gives you a higher return in the future.

The Cash Flow Quadrant – Understanding the Four Quadrant of Earning Money

Robert Kiyosaki has explained this concept of earning in his books Rich Dad and Poor Dad & Rich Dad's Cashflow Quadrant. No matter what your earning source is, you fall into one of these quadrants.

Drawing 01 – Cash Flow Quadrant

E stands for the employee in the first quadrant - Where you get paid for your time, labor, and services provided to the organization. Just the below of that S stands for Self Employed is quite the same. If you are self-employed, you also get paid for time, labor and services. But it differs from the employee in the sense of flexibility; here, you are your own boss.

Most people are frames into the left side of the vertical line; I mean most of the middle-class and poor. Employees are those who have a salary base job in an organization. If you don't work as an employee, you don't get paid. Self-employed such as a doctor, lawyer, and small business owner may not need to ask for pay leave, but they won't earn if they don't work. 95% of the population lies on the vertical line's left-hand side, acquiring only 5% of the total wealth.

On the right top of the quadrant there is B stands for Business owners who own a system where people (Employee and Self-Employed) work for them, and they are leading the whole system. And I in the last quadrant stand for Investors who make money work for them.

The people on the right side of the vertical line make use of OPT (Other People's Time) and OPM (Other People's Money) to create a system to generate money. Because you also have 24 hours in a day like everyone and that you can't change. What you can do, make a network or chain to compound your money.

On the upper side of the quadrant, you get less diversity and greater market risk such as job loss (For Employees) and Falling of Empire (For Business Owner). And on the lower side of the horizontal line, you get flexibility and diversity with greater risk like Market Crash (For Investor).

I hope you already get that; Active Income streams are frames into the vertical line's left side. And all the passive income lay down on the right side.

Importance of Active Income

Active is most important to gain your skills and gather your investment from scratch. And it gives you the instant gratification of job payroll. In the active income sources, you trade your time. That's why it allows you to make money whenever you want. But to get paid through any form of work requires a skill set.

The sad reality of active earning is it brutal to get financial freedom through operational making only. And if you somehow manage to do so, what's the point to be a millionaire if you can't enjoy that?

A distinct analysis on Advantages and Disadvantages of Active Income-

Pros:-

You will get paid more frequently through active earning.
You also get a steady, balance, secure life in most of the active income streams.
You can swipe your active income to passive income in most cases.

Cons:-

There is a limit in earning because here, you trade your time. And like everyone, you get 24 hours in a day.
It requires more physical effort that will be an obstacle when you get older.

Pros and Cons of Passive Income

It is crucial to earning from passive ways because it will diversify your earning and leads you to the financial success. Passive income is not a get-rich-quick scheme. Most people have this misconception that passive income doesn't require any effort, which is ultimately a myth.

Nothing in this world is 100% passive; with proper utilizing this mystery of treasure, you can get financial freedom in time. The most incredible thing about passive earning, you can start it with your 9 to 5 decent jobs. You just have to put a couple of extra hours in a week besides your job.

Here we are presenting a deep analysis of Passive Earning with all strengths and weaknesses-

Pros: –

There is no ceiling to your earning empire. Your income has no limit in passive income.
You get diversity in the sources of your income streams. Variety and flexibility are some of the best parts of passive income streams.
It possesses a compound growth potential.
Accelerate your way to financial freedom
You also get paid when you are not working. Here your money or your system works for you.

Cons:–

Initially, it prerequisites lots of time and effort to build the matrix/portfolio/system.
Most of the passive income requires an upfront capital investment.
It involves more risks than active income streams.

What should you opt for both to achieve your goals?

Most people possess the myth that they can't get rich by active earning or active income is not necessary. Let me ask you a question then- What you'll invest if you don't have money/assets? Active income supplies you that money that you can passively invest in getting growing.

Let's take an example of a doctor. When a doctor gets his/her graduation, eventually he works as a government employee where he/she falls into the E quadrant. Now, if he/she has started an own clinic, it will come under the S quadrant.

In the future, if the doctor builds a hospital and hiring other doctors, then he will be a business owner, standing on the B quadrant. Meanwhile, if he/she invested in mutual funds, stocks, golds, and real estate, the doctor also frames himself/herself in the I quadrant. One can finance/lend/fund/invest their money from the beginning through SIPs or in Lump-sum as per their convenience and flexibility.

Any income you want to generate requires lots of hard work, dedication, and intelligent work. If you don't have lots of money and still want to become rich, I recommend you start earning from active streams. Then swipe into the passive streams. Because it will take time to build a system, and it also requires money to invest.

In the case of active income streams, they are very result-oriented, and you will get paid in brief time intervals. I am not saying that you can start active earning every time without investment. Sometimes it also requires plenty of investment, and you have to invest in yourself to master a skill; otherwise, you'll not get paid.

Before, we share our ideas of finding your best-suited earning streams. Let me clarify some of the active income streams that can lead to passive income after an extent and vice-versa. There are significantly fewer hard and fast rules; it is always an idea and how someone channelizes it. If you are a little bit intellectual and become quite experience to see through the opportunity, your eyes will find out the bright side of the candle.

51best ways to generate Active Income

Freelancing
Engineering Employee
Teaching or Coaching
Government Employee
Graphics Designer or Logo Maker
Doctor
Content Writer
Web Developer
Chemist
Content Manager
Police Officer
Medical Representative
Proprietor or Shop owner
Uber Driver
Sales Person
Video Editor
Marketing Executive
Pet Trainer
Data Entry Operator
Call Centre Executive
Chief Executive Officer
Locomotive Pilot
Fashion Designer
Quality Controller and testing Engineer
Virtual Assistant
Lawyer
Accountant or Book Keeper
Block Development Officer
Surveyor
Customer Service Executive
Music Composer
Revenue Officer
Social Media Manager
Human Resource Officer
Engineering Service Officer
Anchor
Subject Experts
Civil Servants
Editor
Executive Officer
Peon
Journalist
Land Reform Officer
Animator
Transcriber or Voice over Artist
Song Writer
Corporate Works
Clerk
Account Manager
Narrator
Transport Officer

There are many options available besides these 51 jobs enlisted here. All of these are primarily opt-in 20th century to start from scratch. This active income gives you an immediate outcome to put in your passive sources to grow exponentially. More than 25 of these works can be done anywhere that offers you the flexibility to provide effort and time to other income streams.

49 Best Ideas of Passive Income

Affiliate Marketing
Real Estate
Daily Trading, Stock Market, Dividend Stocks, Mutual Funds, Index Funds, Annuities, Golds, Virtual Currencies, Etc.
Peer to Peer Lending Investment
Writing e-book
Selling Courses
Content Marketing
Rental income through your properties
Start a Lead Generation Website
Build an Application
Google Adsense
Invest in Automatic Car Wash System
Refer and Earn
Social Media Marketing
Instagram Sponsored Course
Create Digital Products
Earn through commission
Amazon FBA program
Develop a Podcast
E-mail Marketing
E-Commerce
T-shirt Designing
Be an Influencer
Crowd Funded Real Estate
CD Laddering
Sell stuff on eBay
Build a members-only community
Create and Sell digital files on Etsy
Be an Angel Investor
Refinance Your Mortgage
Digital Marketing
Creating Themes for Websites
Network Marketing
High Yield Saving Accounts and money-making funds
Royalties
Creating Contest Management Website
Flipping Domain Names
Business Partnership or Steak
Own a vending Machine or Laundromat
Stocks Photo Selling
Kindle Book Sells
Start-ups or Entrepreneur
Licensing Music
Video Blogging
YouTube Video Making
Blogging Site
Rent Equipment
Drop Shipping Business
Creating a user-generated website

In recent times you get a variety of passive income streams, but my reason behind choosing these 49 ideas is most of these require less time to build and less upfront monetary investment. There are 10+ ideas in this list that you can start without investment, and 25+ of them do not require a large-cap investment or massive working hours to build.

A Few Book Recommendation before You start

Rich Dad Poor Dad by Robert T. Kiyosaki
Think and Grow Rich by Napoleon Hill
The Richest Man in Babylon by George S. Clason
The Automatic Millionaire by David Bach
Psychology of Money by Morgan Housel

These are my all-time favorites for personal finance, and it would be best if you explore more books as per your test of the genre while you are earning. As I said in the beginning, Learning is earning and gets growing.

Conclusion

Active income shows you the outcome right away, but there is a limit in earning, and passive income may take time but there no boundary of your income. On the other hand, most Passive income requires upfront monetary investment initially, which you can generate from the active earning.

Lastly, we can conclude with this say that in this era of digitalization, you must keep at least one active income and 3 to 4 passive income in your arsenal to achieve financial freedom from scratch.