No matter how you make money, it falls into two categories. Passive income and active income. Thing is most people can’t tell the difference between the two and often they can easily mistake these two types of incomes. Passive income is investment that is achieved through past work that was done. This can be the course you paid for, the ebook you read, the affiliate link you clicked on. Often the work is done once and as a result the person earns income for work on a daily or monthly basis.

It depends on how much time they spent creating the product. Passive income is usually a result of digital products, but it can be earned in other ways as well, but that is the most common way to earn passive income. Active income is different though. Your job is a active income. You earn based on a salary. The harder you work, the more you make. That’s the big difference.

Why is it important to understand these two terms? Because they are so many ways to make money online. But most people have no idea because they don’t understand how passive or active income works. That’s why I created this blog post because before we get into the nitty gritty we need to understand the two categories of income. Once, you have an idea you will understand ways you can make money online. Let’s start.

Passive income (Explained)

When it comes to the top dogs of income it’s passive income. Why? We have limited time on our hands. If you ever wanted to know how people become wealthy it’s passive income. Unfortunately because many people don’t understand passive income they think it’s the illusive pot of gold at the end of the rainbow. Often they assume people exaggerate so they don’t bother.

Passive income has so many advantages. The advantages outweigh all the disadvantages. Yes, passive income seems like a dream come true, but I would be misleading you if I didn’t tell you the uphill battle you will face. Everyone wants to make passive income. Unfortunately that makes it harder to make it. Competition is stiff. Not saying it’s like Hunger Games. But you will need to understand marketing and be well versed in self-discipline. Because it takes a lot to make this kind of income. 

It’s worth it when you figure it out though, but it does require time. Unfortunately not everything is a given. If you also don’t know what you are doing you can get overwhelmed because of how many options they are when it comes to making passive income. 

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Why is passive income important

In this blog post, I list down all the passive income opportunities because they are so many. I will reserve that for another blog. But I do want you to know why passive income is more important than active income. They are limited number of hours in a day. We all know that. But more importantly you can’t duplicate yourself. So, time will always restrict you in terms of making money.

This is where passive income comes in. However, you need to understand that it takes time to build it. I learned an important fact from my father. Everything worthwhile takes time. So, the same applies here. It takes time to build passive income streams which ever you choose to do. But in the long term it is worth. You can be lying on a beach and earn money. But it won’t roll in if you don’t build something and work on selling it. The first $50 I earned online was through affiliate marketing. One of the most popular passive income streams. It was then that I saw the value passive income has.

Active Income (Explained)

Many of us are used to active income. Sometimes it is called residual income or earned income. This is income you earn from a salary, hourly wage or commission. You work for every dime. Now you can’t get rich with this kind of income, but that doesn’t take away it’s importance. Passive income takes time and often you need money in order for you to do passive income.

This is where active income comes in. It will help you to raise enough money for you to start building your passive income streams. They are reasons why people don’t start a business. Besides it taking time, they also don’t have enough money. This is where active income becomes advantageous. You can work so that you raise enough money to build your business.

Active income requires a lot of work as well because you are paying based on the hours you are working. So if you are working 10 hours per day, you calculate that. It depends on what you are doing. Though, if you don’t get a task for the month you don’t make money. If you don’t have a shift then you don’t get paid. You work and then get paid. Not once, but repeatedly. 

Below are the main types of active income

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1. Salary

Most people earn this kind of income. You are trading your year for an income. You go to work at 8am and come back at 5pm. It’s a consistent revenue stream because you know you can depend on money coming into your bank account at a certain time or month. You often go to college or university to earn this kind of income. Though, they are times when you can simply have just a qualification. That’s all you need to be eligible to earn a salary.

2. Hourly wage

Those who don’t have qualifications or are still in school can earn this kind of active income. You get paid by the hour. So if you work for five hours per day and make $15 per hour then that is how much you make per day. It is easier to get this kind of active income than a salary. You can work at a fast food restaurant, deliver food, work for a company like Uber and the list goes on to make this kind of money.

3. Commissions

This type of active income stream helps you to make more money. It’s more profitable than the other two because it comes to the sales you make. They are some jobs where you can make commissions on top of your salary. You get this if you are in sales, events and even real estate. You make a percentage of the initial sale. So, it all comes to how much you sold a property or how much a client paid the company for a service.

4. Tips

 If you are in the hospitality industry this is the active income you will earn. Tips are based on how much people want to give you. There’s no exact figure though it depends on where you work. For example, you are likely to make more money in tips if you work at a country club compared to a fast food restaurant. It all comes down to where you work. 

5. Freelancing and consulting

 If none of the above tickles your fancy and you want to be your own boss. You can do this one. Just like passive income streams this active income isn’t as easy as the others listed above. You need to market yourself well, but you can also start on freelancing sites like Fiverr or Guru or even 99Designs. It depends on what you want to do. You calculate your worth. You can earn anything from 6 to 7 figures doing this. They are people who became millionaires on Fiverr. So, the options are there, but it depends on how good you are.

When I was starting I did this and earned quite a bit of money from it as a result. 

Which is better passive income or active income?

This depends on where you are in life. If you want to start a business, but are unsure how to do so you can start with freelancing or even the other active income opportunities. If you have time on your hand and even have more money, you can do try your hand at passive income. Each of these income types is worth it. It is worthy, but it all comes to you and your experience level.

 I will say this though passive income is better than active income. For a lot of reasons. You make more money in the long run. You can also free up your time when you build the right systems. Even though it does take time it is worth it. So, even though it depends on where you are, you should be focusing on getting yourself ready to build passive income streams.

The great thing about passive income is that you can have numerous streams of income. With active income you have to pick one of two jobs depending on which active income stream you picked. If you have a salary than that will be challenging. The amount of money you make is limited by your hours. Passive income doesn’t have that. You can have seven to twenty-one different ways to make money. 

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