There are many articles that talk about different ways to save money, how to have the right attitude towards it and how to manage your personal finances, without really venturing into the income area. Today, I’d like to go over three different incomes (active, passive and semi-passive), how they work and how you can use them to continually increase your net worth.
What is active income?
Active income is the primary source of income for the vast majority of people. It requires a direct exchange of time for money. The more you work, the more money you earn.
An example of active income would be the typical salaried worker. He or she works 40 hours a week for an amount of money.
The benefits of active income
You know exactly what you will get for your time.
I directly related the time you spend working on what you will earn.
You see the results immediately.
The disadvantages of active income
You have less free time for yourself
I directly related the time you spend working to what you will earn.
To increase your active income, you must do one of two things.
Work more
Get a promotion or a raise
For the person whose goal is financial freedom, working more is not an attractive option, and the market limits most occupations in salary increases. This makes active income an excellent candidate for a secure, steady cash flow that can be supplemented with other types of income.
What is passive income?
Many people view passive income as the holy grail of wealth. Work first to get started, but it will continue to make you money even if you don’t work. That’s what makes it so appealing.
For example, selling photographs or graphics online. Once you have done the work to publish the files, you can continue to make money doing nothing.
One of the most common problems with this type of income is that they only get to a certain point where they earn a small amount of money, only to lose interest and pursue something else. The trick to passive income is to try several things and see what works, then spend your time on a select group of ideas to develop them. Long-term cultivation can allow you to make a lot of money without working.
The benefits of passive income
You earn money while you sleep
It frees up your time to pursue other income-generating activities.
It can be a sustainable source of income.
Disadvantages of passive income
You rarely make a lot of money at once.
It can sometimes require a long-term commitment
It may eventually stop making you money
By creating multiple income streams, you can focus your efforts on improving the ones that work best, while eliminating the ones that perform poorly. As you continue to increase your passive income, you will eventually reach the point where you can pay for all your expenses without needing another job. This is part of my primary goal and can be achieved more easily than you think. Notice that I said “achieved more easily” and not just “easily achieved”. Passive income still takes a lot of work and dedication, but the long-term results are superior to active income.
What is semi-passive income?
Semi-passive income is a combination of active and passive income. Semi-passive income continues to make money when you are not working, but it requires some maintenance or management.
Owning your own business is an example of semi-passive income. Your business will continue to earn money without your presence, but it usually requires you to check in and make management decisions along the way. The more you put in, the greater the earning potential.
Another quick example of semi-passive income would act as a landlord. You make money each month from rent payments, but you still have to check frequently to make sure everything is in order, and deal with any potential problems with the property or tenants. It is partly a long-term investment, as you earn money every month and expect its value to increase over the years.
The benefits of semi-passive income
If you own a business, the potential for growth is significant because we actively involved with your employees in the growth of your business.
You have more time to spend on other activities.
You can sell a business or home.
Disadvantages of semi-passive income
It requires more responsibility than standard passive income
Some management and maintenance are required.
Semi-passive income is so tempting because it can make you money without work, but if you put a little more time into it, you’ll see greater returns.
The trick to making more money
Make money using all three types of income, then continually analyze your progress and focus on only the most successful.
Often, having an active income job and pursuing different passive income ideas is the best way to go, and that’s what many people are looking for. Multiple income streams protect you from the unexpected and allow you to maximize your earning power. Once you earn enough passive income, you’ll have the choice to work only when and if you want to.
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How to earn multiple types of income
Most people already have monthly expenses and work 8 to 5, so they think the only way to get by is to get rid of everything they have. While it’s a good idea to start from scratch if you can afford it, you don’t have to eliminate your monthly expenses to get ahead.
The adage “Slow and steady wins the race” describes the attitude to take when you look at different income options. Find an idea and work with it. Often, you think of an idea, but you don’t see an immediate return and move on. This is the mortal sin of passive income. You need to be patient before you see progress.
