People look for ways to start earning either through a job or a business. However, it is important to know that both these ways of earning income demand hard work and minimal effort. But the income is further classified into active and passive income. If you often get confused between these two, you are in the right place. In this blog, let’s understand active vs passive income to begin your business or job in the right way.
What is Active Income?
Active income is the type of income that is earned with maximum involvement in the work. Or in other words, it is the type of income that is received in exchange for performing certain tasks. Active income can be in the form of the following:
- Hourly wages
- Commisions
- Tips
- Salaries
However, you can also understand active income in a way that when you stop performing your duties or tasks, the income stops as well. For example, consider a doctor who earns by treating patients, and that is the source of his income. It is also important to know that your duties or assigned tasks are responsible for the continuous cash flow and income.
Examples of Active Income?
Now that we have explored active income, let’s also explore different ways of active income in detail:
Monthly Salaries or Wages
Receiving monthly salaries or wages is the common type of active income. The individual receives this active income via 9 to 5 job working for a company or a business. The monthly salary demands performing monthly tasks, whereas it can also be in the form of hourly wages, paid after completing a certain number of hours.
Bonuses or Commissions
This is another way of earning active income, which is an additional amount or payment other than the monthly salary. It can be earned by completing tasks and meeting deadlines successfully.
Self-Employment
Yes! It is also a way to earn active income. Self-employment means being involved in the tasks that help you generate income for your business and brand instead of doing work for others. However, the time and effort you give to your work results in the progress of your own business. But before you do so, make sure you have everything it takes to be a successful businessman.
Furthermore, freelancing is also considered a type of active income where you work solely for the sake of your growth.
What is Passive Income?
Unlike active income, which requires continuous efforts and hard work, passive income is earned with minimal effort. Now these efforts can be in the form of work, initial investment of money, or time, etc. Sounds very simple and attractive, right? But multiple things go behind earning passive income. You may need to set up a business, develop a product, and constantly participate in the initial stages.
Examples of Passive Income?
Just like the different ways of earning active income, there are many ways for passive income as well. Have a look!
Rental Earning
Renting out the property is the smartest way to earn. All you need to do is rent out the apartment, which results in monthly passive income without you having to do anything.
However, as I mentioned earlier that passive income does require some efforts at the initial stages, and similar is the case with rental earnings. You need to look for the properties that are in high-demand areas and well-structured. Besides this, you also need to see what sort of property you want to invest in, whether commercial or residential properties. Hence, it does require slight effort at the initial stage to set up a smooth way of passive income.
Dropshipping Business
Dropshipping is a popular part-time business idea, and people also consider it the best way for passive income. But you need to look for the best suppliers to offer the best products and services to people. Once you set it up, it may require just minimal effort for passive income. According to the research, I found out that starting the dropshipping business results in a 20 to 30% profit, but it may increase once your business flourishes.
Know that one of the best ways to earn passive income is to run your own business. Once you gain more customers, it will automatically lead you to passive income without you having to do anything. You can build your business depending on your interests, be it catering, baking, carpets or rugs, DIY jewelry, candles, or an event management business, etc.
Difference Between Active Vs Passive Income
The following is a comparison between active vs passive income:
| Features | Active Income | Passive Income |
| Definition | Income earned through continuous efforts and maximum involvement in the work | Income earned with minimal involvement in the work |
| Impact on Lifestyle | Followed by proper working hours and schedule | No time bound (might be in some cases) |
| Work Requirments | Demands continuous work for earning | A smooth cash flow even when not working |
| Risk | Stable income source | Higher risk of loss at the initial stages |
| Startup Efforts | Low | High |
| Best For | People who acquire instant stability in income | People who want long-term income and can wait |
| Example | Salaries, commissions, wages, tips, teaching, counseling, doctors, etc. | Rents, online courses, and business owners |
Final Verdict
It is important to understand the active vs passive income for people looking for ways to earn. However, it is important to note that active income might not suit everybody, and the same is the case with passive income. As both these types of incomes differ by the amount of effort that you put into your work, you need to see what suits you the best. But if you are opting for the passive income earned through a business, make sure it is the right idea for you. Not just this, you also need to consider the investment amount, either Rs. 50,000 investment, 1 lakh, or more.
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