Passive Income Vs Active Income: Which One Is Better?


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Active income is a type of income for which services have been performed. This includes wages, tips, salaries, commissions and income from businesses in which there is material participation. Basically, active income is income from any of the following:

  • Wages, salary, bonuses, commissions, or other payments for services rendered;
  • Profit from a trade or business in which you are a material participant;
  • Obtain on the sale or other disposition of assets utilized in an active trade or business;

Passive income is a type of income from intangible property if your personal efforts significantly contributed to the creation of the property.

Passive income is income from either of the following:

  • Any trade or business or income-producing activity in which you did not materially participate; or
  • Subject to certain exceptions, all rental activities, whether you materially participate or not.

Active Vs Passive Income

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Basically, if you receive income (or losses) from a business but are not an active participant in the business, it is passive income. So why do I need both? Well, to get a good passive income online, it is going to take some time and energy and some cash. Keep the active income flowing while working on the passive income. You ask if I have active income, why do I need passive income?

“I would rather earn 1% off a 100 people’s efforts than 100% of my own efforts.” – Rockefeller, John D. (America’s first Billionaire).

If you have a physical store, there are only so many hours you can have your store open without hiring someone,100% of your own efforts. However, your online store can be open continuously; your online store is your 1% of 100 people’s efforts. You cannot be everywhere; every time someone needs what you are marketing. Even when you are at your active employer or at your children’s game or play, your store is working for you.

Ready for the bad news about passive income? The “passive” part is deceptive. To create a business that will continue to spin off money for you when you are doing very little in the “business” takes time and effort to create. A lot of focused work will be necessary at the beginning. If you are new to your chosen niche or the internet, there will be a LOT you have to learn. But just like a garden, it’s well worth the effort to plant extra because once you’ve set up your passive income plants, with just a little watering now and then, you really can make a steady autopilot profit.

Bottom Line

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Unlike passive income, which needs years to build, an active income ensures that you have a consistent income stream and makes money in a short and defined period, like your salary. Usually, an active source of income is necessary to lay the foundation for a passive source of income. Hence, it’s up to you what you will prefer the most for your source of income. both are profitable in their own way.

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