Let me ask you a quick question.
If you were to be given two choices. Which would you pick?
Option 1. You make residual income of $2,000 per month.
Option 2. You make active income of $7,000 per month.
Which would would you pick? Option 1 or Option 2?
Most people will go for option 2 because it’s more money. Yes, you make an additional $5,000. An additional $5000 will go a long way. Not only you pay your monthly expenses with the $2,000, you have extra cash of $5,000 to go traveling, buy that nice suit you wanted, buy a new hand bag, go shopping, give to charity or whatever.
More money is good right?
I believe money is a double edged sword. You can live by it, or you can die by it.
Yes, by all means, try to earn as much money as possible, however it really depends on your goals in life.
If you plan on working for the rest of your life, then active income of $7,000 would be suitable for you.
However, if you’re like me and want passive income that will look after me when i’m older and unable to work, then option 1 of residual income would suit me.
Example Of Residual Income VS Active Income
Let me give you an example.
I once owned a web design business. This web design business what what I owned when I quit working for a company. I went into business for myself and started finding my own clients, selling to them, doing the work, getting paid and so forth.
I must admit, working for yourself is a completely different ball game. You’re now working 10 times harder than you used to work in a job. When you work in a job, all you need to do is show up, do what’s asked of you and you get paid for it.
You can even spend an hour chatting with your colleges and you’ll get paid for it. If you hang around the water cooler and chat with your friends, you’re getting paid for it. If you deliver results or don’t deliver results, you’ll still get paid. That’s the beauty of a job, you get paid no matter what happens.
However, if you work for yourself, you’re in charge of making tough decisions that determine your future. You know that if you stay in bed all day and not go out there and close deals, you’re not going to make any money and can’t pay for the bills. Therefore, you get out of bed and get to work.
I did that. I used to work for a software development company. All I did was just write code and help build a major software that was being sold to big time corporations. I was in a team of programmers and my duty was to help debug the code, make sure everything was working and make sure I wrote quality code.
No matter what I did, I would get paid for it.
However, there was one massive problem. I hated it. I didn’t like working for someone else and I always dreamed of starting my own business and do what I really want. Even though I earned heaps of money from that job, I still wasn’t satisfied with my career. I then handed in my resignation and started my first business in web design, something I love doing.
I really enjoyed designing websites, I was always creative when I was younger and I thought that owning a web design business would really make me happy and lots of money.
Running My Own Company Making Active Income
After running a web design company myself, I learnt so much during that time. I learnt how to work hard. I learnt how to look for customers. I learnt how to look after them. I learnt how to deal with rejection. I learnt how to sell. I learn how to close. I learnt how to balance my books. I learnt so much in business that I don’t believe an MBA can ever teach you. I was street smart and learnt everything on the street. I learn how to hustle and be proactive.
2 years later. I was burned out. Yes, I had the complete freedom to work from home. I worked in my pajamas. I could take a break any time I want. I can have lunch anytime I want. I could do anything I want. I was the boss.
However, one thing is for certain. I worked my absolute guts out. My job was now to find clients, close them, do a good job, look after them, get the money and that’s it. It was incredibly difficult. I would literally work over 12 hours on client work and be earning the same or even less money as I was being paid as my previous job.
That’s when I realized that active income, working for it, is not as good as passive income, not working for it.
I remember I had a good month once, I earned over $15,000 in one month. It was great. I felt like I was on top of the world. The problem was that I worked 6 months to get to that goal. During that time, my bills were fixed. My mortgage was fixed. All my expenses were fixed. The only thing that wasn’t fixed was my income. Some months I earned very little, some months I earned a lot.
That’s when I learnt the very important lesson.
“How you earn your money is more important than how much you earn”
That quote never ceases to amaze me.
Let’s say you spend 60 hours per week making $7,000. Great work! However, the biggest problem with active income is that it’s active. You MUST work to make money. No matter what happens, you MUST work.
The problem with this model is that what happens when you’re sick and unable to work? Your high paying active income job is no longer existent. You can’t leave your hospital bed to go work.
Enter passive income. If you make $2,000 in passive income without you working for it, then this is a more sexy approach to the ultimate lifestyle. Let’ say your complete expenses in order to survive is $1,500.
If you make $2,000 in residual income, that means you don’t need to work. You could be lying on a beach, sipping cocktails while you are automatically making money and all your bills are being paid.
The great thing about residual income is that you’ve already done the work. You’ve already invested the time and effort into it. So it doesn’t matter whether you’re in hospital, you’re still earning money without you being there.
This is the power of residual income. The power of money working for you, not the other way around.
To to answer the question, should you focus on making residual income or active income?
My answer, residual income is better. One day, you’ll be unable to work and not being able to work means no money coming in. Residual income is what will protect you when life gets tough.