Types of Income
Passive vs Active
What is income? Income is the amount of money you make. Other words for income are salary, earnings, and pay. Ways to make income could be mowing your neighbor’s lawn, walking dogs or getting a job at a local store to name a few. It is important to understand what income is because it is what is needed to pay your expenses. There are many different types of income that you can make, but the most common types of income are active and passive.
Active Income
An active income is a salary. Active income is the money you make from an hourly or yearly wage for doing work such as being a waiter. In most cases, this will be the primary source of income with other investments being supplemental. There are only a limited amount of work hours in a day, so you are capped at how much money you can make. Having active income is a more stable source of income, and it’s recommended that you base most of your budgeting predictions on your active income.
Passive Income
A passive income where you receive without actively working. Basically you don’t get paid a yearly or hourly salary and most forms of passive income require some form of an initial investment. The two biggest examples of passive income are real estate and stock trading. With real estate, people often purchase commercial buildings or rent out a property to tenants who pay to use the space. For example, when you stay at an AirBnB you are contributing to someone’s passive income. The stock market allows you to buy part of a company, then depending on the company’s changing market cap, you either gain or lose money. Obviously, it is better to make money passively because you are making money while you are not working.
