Passive Income vs Active Income: Achieve Financial Freedom

Achieving financial independence involves understanding and leveraging two key types of income: active income and passive income.

Active Income

Active income is earned by directly exchanging labor or services for financial gain. It includes salaries, hourly wages, self-employment earnings, commissions, and tips. The more time and effort one invests, the greater the potential earnings. Active income is reliable and predictable, but it ceases when one stops working.

Types of Active Income:

• Salaries and Wages: Fixed or hourly payments for work within an organization.

• Self-Employment: Income from freelance work, consulting, and small business ownership.

• Commissions and Bonuses: Payments tied to performance, common in sales and service industries.

Passive Income

Passive income is earned with minimal ongoing effort after an initial setup. It involves upfront investment of time or money and continues to generate earnings without constant active involvement. Examples include investment portfolios, business ownership, and royalty earnings.

Types of Passive Income:

• Investment Portfolio: Income from assets like stocks, bonds, and mutual funds.

• Business Ownership: Income from businesses operating independently of active involvement.

• Royalty Earnings: Income from intellectual property, creative works, and licensing agreements.