For the vast majority of us, since young, the majority of what we do is in preparation to generate income when we reach maturity.
After all, we need money in this world to survive, unless you are Tarzan.
However, most of us only knows 1 type of income, Active Income.
In this world, there are two types of income, Active Income and Passive Income
Different Types of Income
Active income is the income that you get in exchange for your time and labour. It doesn’t matter if you are a white collar or blue collar worker?
A labourer, a chef, an air steward, a policeman. A politician, a lawyer, an actress or a CEO.
Active income has somewhat been the rite of path for all. The holy grail. The sensible thing to do.
Likely due to the fact that it gives one the sense stability. Otherwise known as job security.
As long as you work, you will get money. This is Active Income.
Passive Income is income you get through passive means. It is income you get without having to exchange much time and labour.
Many people mistake passive income as generating money using money. That is not wrong, it is one form of passive income.
Nonetheless, there are more ways to generate passive income than just using money to create money.
You can write a book, affiliate marketing, dropshipping, e-commerce, normal commerce. Or your invest in the stock market, forex, CFDs, options, properties.
As long as money keeps coming in and you don’t have to spend a lot of time doing it, it qualifies as passive income.
Why do you need both incomes?
The importance of having Passive Income in our lives is actually due to the downside of getting Active Income. Active Income and Passive Income should be earned equally.
As one grows older, our expenses increases together with responsibilities, such as family, house, bills, children, medical, parents and so on.
Once our expenses relies on our active income, we are over-relying on one source of income.
The over-reliance on Active Income can spell disaster if you lose your job. This comes to the topic of job security, which is the truth as much as it is a myth.
It is a truth if nothing happens and you can continue to work. It is a myth when there are retrenchment, health concern, family concerns, old age, injuries and so on. (Especially true in our ever-competitive and increasingly globalised world.)
When that happens, our financial challenge will subsequently bring on additional stress from other areas.
This is why one should not over-rely on Active Income.
Complimenting Active Income with Passive Income, will safeguard your finances as Passive Income will continue to come in when Active Income stops.
Financial Freedom is a concept when Passive Income exceeds your expenses. When eventually, your Passive Income exceeds your expenses, the worry for Active Income cease.
Getting passive income does not mean that you don’t work. It means that you can choose to the type of work you want.
Once your passive income exceeds your expenses, you have a safer financial future.
You will not be affected by retrenchment or injury or health concern that may stop your active income temporarily.
To know how much and how long you need to achieve financial freedom, click on this link.