Active vs. Passive Income

There is more than one way to earn an income. Many people go to a job and receive a paycheck for the work that they do. This is active income. Some people earn income when they sleep. This is passive income. Understanding the difference can help you start earning more income and have multiple income streams.

Most people only have one type of income, which is active income from their job. This can be an hourly wage or salary. You also can receive active income from commissions and tips. This type of income requires you to work on something to be paid. Whether that is giving up your time to come into the office or doing contract work, your income is related to what you can physically do.

Most people don’t think about ways that they can get an income passively. Passive income can come from interest, dividends, rental properties, and patents. There is usually some money or work you have to put into to start earning passive income. Once you open up a brokerage account with stocks that pay a dividend or buy a property that has tenants, you can then say you have passive income. Passive income takes money initially, and that money will work for you. Many people like to say they get money while they sleep from passive income because, after that initial investment, you usually don’t have to keep working on getting that money.

Having multiple streams of income can help improve your financial situation. Within active and passive income, you can have more than one way to receive both. For example, if you have a full-time job and a side hustle, then those are two streams of active income. If you have dividends and a rental property, those are two passive income streams. This is a total of four income streams to help you reach your financial goals.