Passive Income vs Active Income

Gavin HooleThere are essentially two broad kinds of income: renewable (or ‘actve’) income and recurring (or ‘residual’ / ‘passive’) income. Let’s look at each one briefly, starting with…

Active income

This is the kind of income that most people earn: you work, you get paid. You work again, you get paid again. In other words, to renew your income, you must renew your work activities.

This applies to wage earners (often paid weekly), salary earners (usually paid monthly) and also to professionals (e.g. consultants, doctors, attorneys, accountants), who get paid according to their stated payment terms.

For all of these kinds of jobs or careers it’s a case of ‘no work, no pay‘. For professionals, this translates to ‘no clients or patients, no income‘.

It also means:

  • If you take more than your allowed amount of vacation time: no pay for that ‘unpaid leave’.
  • If you own your own business or professional practice, and you get ill or incapacitated for a long time: no income until you can get back to generating your income again, if ever.
  • If you get retrenched: no monthly pay after your golden handshake.
  • If you get too old to be productive: no pay, or at best some kind of lower income.
  • When you finally retire, your income drops and it also does not keep up with inflation year after year — i.e. your quality of life drops too, and can progressively get worse and worse over the years.

Some benefits of renewable income

It is used to create ‘now’ money, which is useful in the short term, and for many people, for most of their lives. But experience has shown that it often isn’t enough to enable one to live the quality of life desired. This can lead to overwork, stress, non-fulfilment and ill-health.

Recurring passive income

This is the kind of income that, once it has been established, keeps coming in regularly even when you’re not actively engaged in generating it on a daily basis.

If you have millions to invest, you can start earning recurring income on your assets immediately. But, you first need to have the millions to invest. Most people don’t. If you don’t have the capital, it takes a little longer to build up an income-generating asset that will yield a growing recurring income that you can live on or that can boost your lifestyle significantly.

With the business plan I’ll be sharing with you, you can start building your own income-generating asset from scratch, yet with no large capital investment or overhead expense needed for getting started. You can do it part-time too. It takes very little time each day, only perseverance to stay in it for the long haul.

Some benefits of a recurring passive income

It takes one toward personal and financial freedom, debt-free living, less stress, early retirement — i.e. improved quality of life.

Once you’ve built your income-generating asset…

  • The income flows in regularly every ‘pay-day’, even when you’re no longer building your asset and working the business.
  • It can eventually replace your regular work-income, so you can effectively retire whenever your second income is big enough to become your main income — self-employment.
  • You can take a vacation whenever you wish, or pursue a career you’ve always yearned for, instead of doing a job you’re not really excited about, just for the monthly pay-cheque.
  • Or, you can continue with your day-job and use the second income to upgrade the quality of your lifestyle, your home, leisure time, etc.
  • You can say goodbye to financial stress, debt, making do with less than you feel you deserve.
  • You can become more helpful and generous towards others, knowing that you have the financial resources to do so without a pinch.

Active Income vs Passive Income

A substantial second income can truly change one’s life in ways that satisfy one’s heart. The choice belongs to those who are fortunate to have chosen to build a second income that includes a substantial passive income element.

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