What is passive income? How is it different from active income?

Hey there! Have you heard of passive income before? It’s basically putting an upfront monetary and/or work investment and receiving the income again and again without having to do the work repeatedly. Passive income is often contrasted with active income, which is any work you do to get paid once. That’s right! Only once. Active income is often associated with tradtional employment, the 9-5 job that majority of adults go to 5 days (or more) a week. Now you may ask,” What’s wrong with active income? Don’t bills get paid when I work?” The following are some cons of active income:

  1. You have to be physically present to do the work to be paid. – Thats right! You are trading your time and your freedom for money! I am sure many of you readers can identify with me about the times when we would like to spend a little bit more time relaxing or doing the things we want to do but can’t because of work or Monday blues. If your boss says your break time is 30 mins, it is 30 mins whether you like it or not. If you manager says your toilet break is 5 mins, it is 5 mins period. We are basically giving up our freedom in exchange of linear work.
  2. You don’t get paid when you fall sick or are hospitalized. – Another overlooked part of active income is that when you take medical or hospitalization leave from work, it at most covers you for a few months in terms of time and money, and then you are on your own. Unless you have a cushy savings bank account, some of you may struggle financially to pay the bills even with insurance.
  3. Your job may not last forever. – My dad worked throughout his entire life in one company. Today, my dad’s career circumstance is an exception than the norm. Graduates are expected to change at least 3 to 4 jobs in their lifetime. And if you used debt to finance your university education, these periods of transition may cause significant stress to you as your unpaid debt gathers interest.
  4. You cant give your job to your children or spouse as an inheritance before you pass on – In today’s challenging economic world where we want to give our kids an edge or headstart, a job is not transferable to your younger generation. Therefore, you can’t include it in your will on the list of things to pass down to your children.

These are some of the disadvantages of being an employee for the long run. What are some of the advantages of passive income streams? The following are some benefits of owning a passive income stream:

  1. Freedom of time to do what you want to do – This is one of the advantages of owning a passive income stream. Your time is yours. It doesn’t belong to the company or your boss or manager anymore. You are free to travel around the world, indulge in your hobbies or even spend more time with your loved ones and friends.
  2. If you are good, you can earn more than your current job. – Employees are treated in the books as expenses to the company. Therefore, your boss or manager is more inclined to pay you as little as they can legally afford to to generate a bigger profit for themselves. Many of you know that a lot  of things in life isn’t fair. Income inequality is getting wider and employment opportunities are not equally available to everyone and so on…It is up to ourselves to give ourselves the best quality of life. Nobody except our loved ones will do it for us.
  3. You can pass down your passive income stream to your kids or spouse before you pass on – Unlike a job, your passive income stream is something what accountants call an asset. Assets can be transferred to one entity (which is a very complex way of saying a person) to another. It could be your wife who spent the best years of her life caring for your children. It could be your kid who is intellectually disabled. You know they are counting on you to provide for them. Including inside a will the assets you would transfer to their name when you die could be the best gift to them.

The above are some quick examples of successfully owning or building a passive income stream. In the next post, I will be sharing some passive income streams that I have tried in my journey to be financially independent. Share, like, comment or subscribe to this post if you feel it inspires you. Thanks and have a great day ahead!

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