What is the difference between working for your money or let money work for you? It’s the difference between active income and passive income.
Active Income vs Passive Income
When people hear these two terms, they often get confused and don’t know what they refer to. After all, income is income.
In essence active income and passive income are just money you get that you can spend for necessities, pleasure and obligations.
But the big difference between active income vs passive income is HOW you earn the income.
The difference between how you earn the income may not even impact your wallet at all (if you don’t want to) but it will change the way you live your life.
To explain the difference between active income vs passive income, I will start with the one most people know – active income.
This type of income is what you do.
I would bet that over 95% of the readers of this post only have active income. This means that you are trading your time for money.
You studied (a LOT) to learn your skills whether you love your job or not. And you use your time doing and practicing those skills to get paid money; to earn your income.
The reason why this type of income is active, is because if you stop doing your job, if you don’t put your time in, you stop earning income.
In case you’re wondering…. There is nothing wrong with that and I don’t have a problem with it. I’ve done plenty of active income. But…
Active Income Problems
No show, no pay
One obvious problem I already mentioned. If you depend on active income, you won’t get any of it, if for some reason you have to stop your activity.
This is actually a big problem for self-employed people, as employed people will still get paid if they take vacation or sick days.
Self-employed individuals only get paid when they actually work and give their time to their activity.
Time used cannot be reused
I realized this truth once I stayed at home with my kids.
The time traded for money (or any other activity you engage in), once used, is gone forever. You will never recover that time. So it’s important to think well on what you use your time for.
I use my time for my kids and to achieve that, I had to find ways of generating income that does not require my time. I will talk about what strategies you can use to achieve passive income in a future post.
Obviously, the problems of active income are solved by passive income.
But in the battle of active income vs passive income, which passive income is the clear favorite, not everything is roses.
Let Money Work for You
If you have money, letting money work for you is easy. You already have some, so it is a matter of allowing it to do what it wants… Make more of itself!
If you don’t have it yet… You can and you will succeed with some dedication. I will get to it a minute.
So how can you get passive income?
Investing is one answer. What sort of investments?
- Real Estate
- Businesses (Network Marketing is an option)
Stock investments give you an income but truly passive income from investing in stocks for instance comes not from sitting in front of a screen trading (that’s active – unless someone else you trust is doing it for you) but from investing in companies that pay dividends from those stocks.
Once you buy those stocks you just wait for the money you invested to pay you back. That’s a great example of money making money for you without trading time.
Cryptocurrency is is very volatile but I think it is here to stay. It’s the sort of thing you invest and let it sit because its volatility is a great risk. Fortunes have been created and have disappeared in crypto’s short life.
So my advice here is to be smart and stay with the known cryptocurrencies which are performing better and not invest on promises and dreams. There is a lot of scams out there and only a few currencies have the potential to stay.
Business (Network Marketing is an option)
A way to have money work for you and not have to exchange your time for it, is to build a business that runs on a system independent of you.
What it means is that the business will function perfectly when you are not there (the same way as if you were there). So you get your profit but you are not trading your time.
If you want to know more about this strategy, I recommend reading the book E-myth from Michael E. Gerber.
Network Marketing is a great example of a business you can build through building a team and sharing the results that will give a passive income and is cheap to begin. But there is some care you need to take. See this video for more on choosing a business.
Passive income from real estate is achieved mainly from rental income.
As with most passive income strategies, rental income is a long term strategy and not a way of making a quick buck but by using the proper strategies in the proper market the results can be exciting.
Passive Income Advantages
Passive income has many advantages but here are my favorite ones.
The whole point of passive income, in my view, is to free time for doing the things that really matter in life: your family, your hobbies and later, help you achieve your dreams and the life you want.
So here is a final thought:
To free up your time you need to generate an income that will cover your expenses. As soon as your passive income strategy covers your monthly expenses, you achieved financial freedom and better yet, time freedom.
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Facebook: Luis Craveiro on 5L Properties