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Tanya Saksena

Tanya Saksena

Senior Copywriter, LXME

Active vs passive income

Life is about living and not just barely surviving from paycheck to paycheck.  We all want financial freedom, right? To live life on our own terms, without worrying about making ends meet. We do too. Let’s talk about different types of income and the difference between active income and passive income. Believe it or not, understanding this distinction between active income vs passive income can be a game-changer when it comes to achieving your financial goals. 

What is Active Income?

You know that paycheck you receive from your 9-to-5 job? That’s what we call active income. It’s the money you earn by actively working and trading your time and skills for cash. Whether you’re an employee, freelancer, or small business owner, if you’re actively involved in the day-to-day operations, your income is considered active.

Let’s take the example of your favorite relative who runs a successful catering business. She spends countless hours planning menus, cooking up a storm, and coordinating with clients. That delicious income she earns? You guessed it – active income! The more effort she puts in, the more she gets paid.

What is Passive Income?

Now, let’s talk about the real dream – passive income. Imagine making money while you’re sleeping, sipping mimosas on a beach, or binge-watching your favorite show. Sounds too good to be true, right? Well, it’s not! Passive income is money that flows into your bank account with little to no active effort on your part.

Think about your friend who rents out her flat when she’s out of town. That rental income she earns from her tenants? Passive income! Or what about that YouTuber you follow who earns money from ad revenue on their videos? Yup, you got it – passive income.

Difference Between Active Income and Passive Income:

Now that we’ve covered the basics, let’s understand how active income and passive income differ.

1. Time Investment:

With active income, you’re essentially trading your time for money. The more hours you put in, the more you earn. With passive income, however, the initial time investment is higher, but once it’s set up, the money keeps rolling in with minimal effort on your part.

2. Scalability:

Active income is limited by the number of hours you can physically work. Passive income, on the other hand, has the potential to be scaled up significantly. Think about it – you can only work so many hours in a day, but your rental property can generate income 24/7. The returns you get on your investments are also passive income as your money compounds without you actively working. You can start your investment journey with LXME, one of the best investment apps for women.

3. Tax Implications:

In India, active income is typically taxed at a higher rate compared to passive income. So, if you’re looking to keep more of your hard-earned cash, passive income streams could be your best friend. This is one of the differences between active income vs passive income.

Passive Income vs Active Income: The Winning Combo

Now, don’t get us wrong – we’re not saying that passive income is better than active income or vice versa. The truth is, both have their pros and cons, and the key is to strike a balance between the two.

Your active income provides a steady stream of cash flow to cover your day-to-day expenses, while your passive income streams can help you build long-term wealth and achieve financial independence.

Imagine this scenario: You have a stable job that brings in active income, but you also invest in a few rental properties, a small online business, and some dividend-paying stocks or mutual fund investment for women as well. That’s a diversified income portfolio that combines the best of both worlds! Read this blog to learn more about passive income sources.

Conclusion:

At the end of the day, understanding the difference between active income and passive income is crucial for any woman looking to take control of her finances. While active income is necessary for meeting your immediate needs, passive income can be the key to unlocking long-term financial freedom.

So, start exploring passive income opportunities that align with your skills, interests, and resources. Whether it’s investing in real estate, starting a side hustle, or building an online business, the possibilities are endless. And remember, LXME is here to support you every step of the way on your journey to financial empowerment!

FAQs

1. What is the difference between active income and passive income?

Active income requires ongoing effort and time investment, like a regular job or freelancing. You work, you get paid. Passive income, once set up, generates money with minimal ongoing effort, like rental income or dividends. Active income is more immediate but limited by time, while passive income has potential for growth but may require initial investment and patience.

2. Can passive income become active income?

Yes, passive income can become active income if it requires more ongoing effort than initially anticipated. For example, a rental property might need frequent maintenance or tenant management. Similarly, a successful blog that started as passive income might require regular content updates and engagement, shifting it towards active income.

3. Is it possible to earn both active and passive income simultaneously?

Absolutely! Many people combine active and passive income streams for financial stability and growth. You might have a day job (active income) while also earning from investments or a side business (passive income). 

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