Active Income vs Passive Income (Explained)

What is Active Income?

Let’s learn more about active income vs passive income. Active income is a source of income that comes from work that you do on a daily, weekly, or monthly basis. For example, This could be your day job, side income, or any other form of money that you generate through active work and effort.

Active income can help pay for your living expenses, discretionary spending, and other money needs. According to FreshBooks, in an average person’s lifetime, an estimated 90,000 hours are spent at work.

There are plenty of ways to generate passive income to create more free time but it may require additional work upfront (more on this later). There are also ways to increase your active income (example in the next paragraph).

Ways to Make Earn Money Actively

• Job: Your day job would be considered active income since you make money whether that be hourly, salary, or commission by working. You can increase your income by finding a higher-paying job or looking for opportunities with growth potential. Just like the stock market and the economy, the job market also fluctuates. Keep looking for job postings, especially ones that are newer. You can filter jobs posted within 24 hours or a week on certain websites. If you are looking for new job opportunities you can use websites like LinkedIn, Glassdoor, or other job posting websites to see what companies are hiring.
• Side Hustle: If you have a side job or business, then that could be considered active income. Flipping items online, and creating a product or service are just two ways you can create streams of side income. There are plenty of other ideas online and some of them can even lead to passive income opportunities. Two other ideas could be consulting or freelance work for a specific niche. 
• Other: Even passive income, in the beginning, could be considered active income since it requires some initial planning and development. Over time consistency and reinvesting money back into the passive income business could lead to less work in the future. 

What is Passive Income?

Passive income is a very popular topic especially now with social media and online businesses. Some online businesses have lower barriers to entry and lower startup costs. Passive income can be generated from investments and/or side hustles that involve less work overtime. As mentioned earlier in the article, passive income businesses may require work in the beginning, especially the initial plan. There are plenty of opportunities out there and it could be effective to make a list of the ones that interest you the most. Then you can narrow down and pick one (keep reading for some examples).

There are numerous articles and videos online going over different passive income methods so I created a list below that is concise and contains ideas with lower barriers to entry.

Ways to Earn Money Passively

• Dividend Investing: Various companies and ETFs (Exchange Traded Funds) that trade on the stock market payout dividends to shareholders. Dividend amounts vary between companies and their payout consistency can be dependent on the companies’ health. Reinvesting the dividends using a DRIP or (Dividend Reinvestment Program) can help compound the money that was initially invested. Being consistent and researching potential investments can be time-consuming in the beginning. Once you have the money to invest, you can buy dividend stocks in fractional shares or full shares depending on the brokerage and how much capital you saved. You can learn more about dividend investing from The Dividend Investing Resource Center.
• High-Yield Savings Account: Some banks offer high-yield savings accounts that pay an annual percentage yield (APY) on the money you have in the account. This can be an easier way to make money but requires capital upfront to earn interest. You can save money in increments or set up recurring deposits into your savings account to automatically start earning interest. The annual percentage rate could change depending on the bank and/or economic conditions. It is a good idea to research different banks and what they offer regarding interest rates. Also, it is important to do due diligence on the bank, FDIC membership, and other factors like minimum account balances. 
• Blogging: You can start a blog on your favorite topic or some niche you are interested in writing about. There are ways to make money by monetizing the website, getting sponsorships, doing affiliate marketing, and/or selling products/services. There are several resources online to learn where to start a blog and how to build one. According to WebsiteBuilderExpert, the average cost to build a blog could be between $50 – $200. 
• E-Books: If you like a topic or niche, you can start writing an e-book and sell it to people on your website or social media. Going back to blogging, you can promote your e-book on your website and allow users to download it. E-books can also be fun to create if you enjoy researching and writing about the topic of your choice.
• Online Courses: An alternative to e-books can be creating an online course for people to watch. After putting in the work to create the course, you could market it in your free time to generate money. Online courses are also fun to make if you like creating and editing videos. You can also build a community with your customers and find ways to make recurring income while providing them with value.

Which Should You Focus On?

The short answer is both. Active income and passive income can help you build wealth faster and more efficiently. Putting in the time upfront can also expedite the process. You can also slowly build your passive income business while maintaining your day job.

In conclusion, passive income can be created slowly through dividend investing or other compounding strategies. You can start compounding your money early on which can be an effective way to earn passive income 10, 20, or 30, years down the line. Alternatively, you can earn money passively and possibly faster by putting in more time in the beginning and building a product or service that generates business in the long run.