This week, I want to focus on the difference between active vs passive income and share why everyone needs to have both.
Last week in my post, Zero Risk Businesses You Can Start Today, I shared some low-risk/no-risk business ideas for how to start your first business or add an additional stream of income for almost no initial investment.
Active Income means you need to show up, get up, and be involved in order to get paid. As a Business Growth Strategist, in order to get paid, I have to deliver coaching and consulting services to my clients.
The Definition of ‘Active Income:
Income for which services have been performed. This includes wages, tips, salaries, commissions, and income from businesses in which there is material participation. Source
Translation: if you are an employee and lose your job or are unable to perform the duties of your position, your income goes away. If you are a business owner and God forbid get in an accident or get sick you are up a creek without a paddle.
Active income is where everyone gets started; however, in order to create lifelong financial security, you need to start generating passive income.
This is the money you can earn even when you are not directly involved or even present. There are about a million different get-rich-quick schemes that promise income without effort, but the truth is, it takes time and effort to truly begin generating passive income you can rely on. Does that mean it’s not worth doing? Absolutely not!
The Definition of ‘Passive Income:
Passive income is income received on a regular basis, with little effort required to maintain it. Source
If you added $100.00 dollars a month of passive income to your household income each month for the next 10 years, you would be generating $12,000 per month by the end of the ten-year period. Regardless of the time and effort required to create this, you can retire in comfort without having to worry about trading dollars for hours, slaving away at a job, or always being on the clock running your business.
Here are some common ways to start earning passive income:
- Any type of property income
- Earnings from a business that does not require direct involvement from the owner or merchant
- Rent from property
- Interest from a bank account
- Royalties from publishing a book or from licensing a patent or other form of intellectual property, such as computer software product
- Earnings from internet advertisements on websites
- Dividend and interest income from owning securities, such as stocks and bonds, is usually referred to as portfolio income, which may or may not be considered a form of passive income. In the United States, portfolio income is considered a different type of income than passive income
You may already be building both active and passive income and if so – good for you!
If not, a great place to start is by participating in a direct selling opportunity where you can earn both commission upfront, but also make residual income on all of your customers’ future sales and get a portion of the profit from their customers as well. This will cover all of your bases – both active and passive.
I suggest you begin here because it requires little to no upfront investment.
Yes, it requires sales and yes it is work. No magic bullets here. But if you are willing to put a little bit of energy into the pockets of your spare time it could have a big payoff in the long term…along the lines of early retirement, financial freedom, and more.
To sum it up:
active vs passive income isn’t the right question to ask- you have to let that active income work for itself in the form of passive income to create real, long-lasting wealth!
Stay tuned because in a few weeks I am going to introduce you to a friend of mine who has nailed this model and is helping thousands of others do the same. Next week I am going to share the pros and cons of this model and the key considerations you MUST abide by to be successful in achieving your active and passive income goals.
I’d love to hear how you are creating either form of income in your business! Tweet me @kellyroachint using #activeincome or #passiveincome and let’s chat!
For more business-building strategies, check out my podcast, Unstoppable Success Radio!