There are two types of income streams, passive income vs. active income. They both earn you money, but in different ways.
Most people start out with an active income but eventually switch to a combination of active and passive income or passive income altogether.
Have you ever wondered about the difference between these two concepts? The difference between passive income and active income is the concept of earning. Both methods have advantages and disadvantages. Let’s learn together the difference between passive income and active income.
What is active income ?
Active income refers to the income received from performing a business in order to generate income. This income includes salary, commission and income from independent projects. On the other hand, it considers the money that an individual earns for doing business.
Active income has major resource constraints in terms of time and physical health as well because time is limited, and it requires the development of skills, knowledge, and abilities to increase income. For example, Mr. A, who used to work 8 hours a day, earns a monthly wage of 15,000 THB, however, with the same working hours, Mr. A may earn twice, i.e. 30,000 THB. This means that Mr. A can earn twice the active income during the same working hours.
However, in the era when there are a variety of methods of uncertainty, one-way income is not always the only solution. People start to build up active income in more than one channel, such as making money from a full-time job and still looking for income from freelance jobs as a backup or additional income from online sales.
And as we work harder to earn more income, it causes a faster deterioration in physical health. That is why the income earned will be used for medical expenses.
Therefore, once we have a certain level of active income, then investing is a good option to simultaneously generate passive income in order to earn sustainable as well as balanced income.
What is passive income ?
Passive income refers to any money that is earned in a way that makes your money or assets work for you in order to create more value. It may take time, but it’s not as much as active income. It is evident in real estate investment for rent or investment in stocks and intellectual copyrights, including other types of investments.
As a result, everyone should have passive income in order to ensure stability in life and be able to live as needed because passive income really does not require much effort. Earning passive income at the initial stage requires a fair amount of patience.
What is the difference between passive income and active income?
In order to generate active income we need to work, while passive income is to have assets that work for us to make money.
Active income has a time limitation for as long as we can work, while we can earn passive income even if we can no longer work.
Active income is the way we work and receive returns almost instantly, such as earning wages, while passive income takes a long time to generate income.
In short, the principle of passive income is to get money to work for you, while active income is to have you work for money. Therefore, income earning in one direction may not be stable. It is better to earn income in both ways.
Passive Income from Investment Property
Real Estate Investing (IP) is a new trend of real estate investment in the form of passive income, which generates returns without making any effort. It is ideal for those who already have a certain amount of active income and spend that amount to make a dividend-generating investment and then spend that earnings on monthly expenses. Currently, many investment property developers are located there.
One of them is the CISSA Group, which developed the Wyndham Grand Nai Harn Beach Phuket project in the tourist areas of Phuket. In addition, Wyndham Hotels & Resorts, which is considered to be a world-renowned hotel management brand, manages hotels by allowing investors to invest and get profits of up to 8% per annum in addition to the full buyback. This thus allows investors to generate worthwhile and sustainable returns which contrast with highly volatile markets.
What is the importance of active income?
Active income is very important because it enables you to generate income quickly and steadily. It does not take years to create, unlike passive income. In addition, active income often gives people a way to grow passive income.
Active and passive income: which is better?
Active income plays a vital role by providing funds to fund one’s passive income source. But according to experts, passive income is better than active income. They maintain that the passive income stream that earns money even if the individual is not working supports this. This allows the businessman to take several vacations and go home with more money in his bank account.
How can a stream of income be categorized as active?
An income source can actually be called an active income source if it meets either of the following two conditions:
1. If the individual has to devote at least 500 hours per year to the task.
2. Most of the work that is physically required is done by the person.
Each of these sources of income can be beneficial, and will be taxed at different rates. Many individuals though make money, it can still be financially satisfying when combined with capital gains and passive income, allowing you to build your wealth much more.
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