When you consider your income, you probably first think of the money you make from your job. But what if that wasn’t the only type of income you could make to grow your wealth?
What if you could make money while you sleep so you don’t need to always be working to make more money.
Well, there is! The fact is, passive income is one of the best ways to achieve financial freedom and live life on your terms without a full-time job.
While one form of income isn’t necessarily better than the other, many people strive for passive income to have a more comfortable life.
In this post, I’ll explore passive income vs active income, examples of both passive and active income streams, and some passive income ideas to help you build wealth and grow your net worth. Let’s get started!
What is Passive Income?
Passive income is money that is earned without having to actively work for it. This type of income is ideal because it gives you more flexibility in your life to do the things you want.
Passive income sounds nice, doesn’t it?
Well, it’s not quite that simple. If you want to grow a passive income stream, you’ll need to spend a significant amount of time or money to reach your goal.
Unlike active income, with passive income your earnings are virtually uncapped. As long as you continue to grow them, the money earned will compound over time.
Examples of Passive Income
There are many different passive income streams you can create to grow your income. Some of the most common examples include investments like stocks or real estate, small businesses that you do not have to actively manage, or any royalties you make from a book or product.
What Is Active Income?
Active income is money earned by doing a specific job or task. Most people rely on active income to pay their bills, save money, and much more.
Active income can be a great way to earn money instantly without spending the time or money to get started.
Active income cab is a powerful way to build wealth, and it can be used to build your passive income streams.
Examples of Active Income
Examples of active income include your job, a side hustle, commissions you make, and any tips you receive. These examples are all income that is made by doing a service or job.
For example, if you receive a tip or commission – this is for services you performed to get it. Without doing the service, you would not get the additional income.
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Passive Income vs Active Income: What’s the Difference?
The difference between active income and passive income is mainly the amount of work needed to make money.
Active income will require more time and energy to produce than passive income. However, passive income streams will require a large amount of money or energy upfront to get started.
For example, if you start a job that pays $100,000 annually – your regular income would increase overnight. However, if you want to make $100,000 in passive income, you would need $1 million to invest or enough time to grow a passive income stream to the same amount.
Passive Income Ideas to Make More Money
Now that you know the difference between passive income and active income – you might be wondering how you can build your passive income streams so you can make money on autopilot. Here are some passive income ideas to help you get started!
Start a Blog to Earn Passive Income
Blogging is a great way to start earning money online if you have the time to start it.
The potential income from blogging is tremendous. Some bloggers are capable of making over 7-figures from their website.
While blogging can be passive, it will mostly be active income at first and will require a significant amount of upfront work.
By monetizing your blog through display advertising, affiliate marketing, or selling online courses – there are plenty of ways to generate income online.
The money earned from your blog can be reinvested into the blog or used to invest in a rental property or other passive income sources.
If you aren’t sure how to start a blog, check out my guide to help you get started!
Invest in Stocks
Investing in the stock market is one of the easiest and most accessible ways to generate passive income and without a ton of cash.
While you’ll always want to take a long-term approach to investing – making money in the stock market is a great way to generate cash flow.
There are many ways to invest in the stock market. Some investors might prefer dividend stocks while others lean towards more diverse assets like index funds or ETFs. It’s hard to go wrong when investing in the market, but as with any investment you’ll want to be sure you can afford to lose the money you invest.
Ready to get started growing your portfolio income?
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Invest in Real Estate
Just like investing in stocks, investing in real estate is an excellent method to earn passive income.
There are several methods to invest in real estate with little to no effort but my favorite is through crowdfunded real estate. By using a platform like Fundrise, you can start growing your passive income sources overnight.
With a low minimum investment, Fundrise is the perfect way to start your passive income journey. Register with the link below to get started.
If you’re looking for alternative methods to invest in real estate, purchasing rental properties can be another great way to generate income without working.
Owning a rental property will require more work than crowdfunded real estate, but your returns can also be more prominent. Rental properties can make money through several methods, which makes them a valuable tangible asset to own Between your rental income, appreciation, and equity gained through mortgage pay down, owning a rental property is a prime example of a passive source of income for your finances.
But don’t forget about rental income appreciation! As time goes on, there’s a good chance your rental income will also increase. This often goes hand in hand with your properties appreciation.
Finally, as a real estate investor, you’ll receive many potential tax deductions to save money come tax season.
One final option when considering real estate is a real estate investment trust – also known as a REIT. These are similar to crowdfunded real estate and are traded on public markets so they are easily accessible. REITs make real estate investing simple because it is more passive and easy to get started. You can open up a brokerage account with Acorns to get started!
Write a Book to Start Making Money
Authoring a book can be an excellent way to earn passively from your writing.
If you’re an expert in your industry, writing a book can be a great option to share your knowledge with other people while also generating passive income.
Getting started is easy and it will only require you to take the time to write your book. Once it’s written, you can upload digital or physical copies of your book online using Amazon.
The income generated from your book can be substantial. Some authors make over 7-figures of annual income from their books making it a superb income producing asset for your finances.
Earn Passive Income on YouTube
YouTube has become one of the most popular websites on the internet today, and it can also be a great source of passive income if you’re able to generate a large following.
YouTube stars often make millions of dollars from their videos and endorsements which take very little effort to produce once you understand how to create and edit videos.
Don’t get me wrong, starting and growing your YouTube channel can take some serious time and effort. Your active involvement in your channel we be significant at first. However, once your channel begins to grow, the effort required to continue to make money will decrease.
Stock photography can be an entertaining way to make money passively without a significant upfront investment.
There are many companies like Shutterstock and iStockPhoto that allow you to upload your photos in exchange for royalties. Selling your photos can be an excellent way to generate passive income for your finances.
You can also consider selling your photo rights or licensing to companies that need photos for their products and services.
High Interest Savings Account
Opening a high interest savings account is one of the easiest ways to generate passive income without any additional effort.
By using banks like CIT Bank you can start earning interest income on your savings to make money passively. While you won’t make a ton of money in a short period, the interest earned can grow exponentially over time.
Start a Business
While you’ll certainly be actively involved in your business at first, as it grows – there’s a good chance your income will shift to become more passive.
There are many small businesses you can start without a large capital investment if you want to achieve self-employment and work for yourself.
Depending on the business you decide to start, you might need some additional funding to get started. You can pick this money up from a silent partner and form a limited partnership.
If you want to make your business truly passive, you’ll need to hire employees to run the day-to-day operations. This can be challenging but extremely rewarding so you can live the life you want.
Advertise on Your Car
Advertising on your car can be considered passive and active income because you’ll need to do something in order to make the money. However, because you’re likely driving anyways, I would consider it more passive.
The amount of money you can make will depend on your location and the number of miles you drive. You can use platforms like Stikr to place a small advertisement on your car to start earning money.
Invest in Art with Masterworks
If you’re looking for more ways to use your active income to fuel your passive sources of income, investing in artwork is an excellent method.
While this might seem complex and complicated, it’s actually much easier than you’d think thanks to platforms like Masterworks. You can easily invest in many different famous pieces of art to start earning money passively.
Register below or check out my full review to get started!
Who Needs Passive Income (And Why!)
Both active and passive income are important. When comparing passive income vs active income it’s easy to see how both can be very powerful in helping you build wealth and grow your net worth.
Whether you work a full-time position with a great hourly wage or you work a part time job with smaller hourly wages, earning money through passive means is essential on your journey to financial freedom.
Related: Passive Income Tax Rate
Final Thoughts on Passive Income vs Active Income
There’s no doubt that passive income is a superb way to diversify your income and make money with little or no effort.
By combining both active and passive income you can grow your wealth rapidly and make enough money to retire from a full time job.
Owning rental properties, investing in stocks, or authoring a book are all great examples of passive sources of income. On the other hand, working a job or side hustle is a more active source of income.
Your goal should be to use the active income you make to fund your passive income ventures. By doing so, you can shift your income over time to where the majority of your income is considered passive instead of relying on an active source to keep your finances in check.
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