If you have looked on the Internet about ways to make money, these two terms are a sure fire search result. Although we don’t use ‘Active Income’ and ‘Passive Income’ on a day-today basis, whatever method we earn an income falls under either of these categories. So if you are new to the whole “earning money for a living” scene, take a look at the article below so you have a clear vision of what you want to do for the rest of your life.

Definition of Active Income vs Passive Income

Active Income is a source of income that directly correlates with the hours of work you put in. A normal 8-5 job is the perfect example for this. You work 8 to 9 hours a day (maybe even put in overtime) and you still end up getting a fixed income. The moment you stop working at this job, you will lose your stream of income.

Passive Income is drastically different from its counterpart. In this method of earning, you are not guaranteed a fixed return for the time or effort you put in. Then why would anyone tread this path, right? Well, emphasize on “no fixed return.” The returns from Passive Income sources could range from 0 to unlimited. The best examples for a passive income sources are investing in the stock market or working online.

Before you jump into any conclusions, let us mention that both modes of incomes have their own merits and demerits.

Advantages of Active Incomes

• Guaranteed and fixed income despite company performance
• Often associated with other benefits (Eg: insurance, medical, fuel)
• Often facilitates a retirement plan (Eg: pension, EPF, retirement fund, etc.)

Disadvantages of Active Incomes

• Fixed income
• Often times less financial freedom
• Work-related stresses
• Usually requires a standard education

Advantages of Passive Incomes

• The potential of earning limits are virtually non-existent
• Financial freedom
• Ability to monetize your personal passion
• Less work-related stresses
• No professional education required

Disadvantages of Passive Incomes

• No guaranteed return
• There could be months with very low incomes or even losses
• Initial work that needs to be put in is high
• You will be responsible for arranging your own retirement plan

Busting the Myth of “Easy” Passive Income!

There is nothing called “easy money.’ If something was to be easy, everybody would be doing it and it would eventually become tough due to competition. So unless you are an inventor with brilliant schemes for income generation, it is tough work for you.

The most significant benefit of passive income is that your effort need not be at 100% for the entirety of the income generation timeline. Initial effort would be 200% and there would, eventually, come a time when your passive income sources would run on auto-pilot.