In this post, I’ll be discussing the the two types of incomes that influences your life, active income and passive income. I must say that learning this information can really change the way you spend your time in your business or life.
Most of us who work or have businesses all earn a particular type of income. Most of the time, we are earning active income. However it’s really important to look at how you earn your income and how this will affect your future goals.
Before I explain the difference between Active Income VS Passive Income, I’ll quickly tell you a story.
The Story Of Pablo and Bruno
Once upon a time, there were two men named Pablo and Bruno who lived in a village on the bottom of a mountain. The village had a problem, the only way they were to receive water was from the top of the mountain.
Bruno had a business idea, every morning, he would walk up the mountain, fill buckets of water, carry them while walking all the way down to the village. He would sell the buckets of water to the village and he made lots of money.
Pablo had a different idea, he thought of building a pipeline that would connect the water at the top of the mountain to the village at the bottom. He would make money by earning a percentage of profits from the pipeline. However this would take time.
Bruno laughed at Pablo’s idea and continued to make lots of money carrying buckets of water. Pablo went away and started his idea.
2 years later, Pablo finished his project and finally built the pipeline. The pipeline was a huge success because it delivered fresh water faster, it was cleaner and it was cheaper than Bruno’s efforts.
However, Bruno’s efforts were lacking. Due to constant walking up and down the mountain, the quality of the water would be affected and sometimes was covered in dirt making the water unclean. Bruno’s strategy for beating Pablo was to work harder, he would carry more buckets of water up and down the mountain.
Bruno did this for many years and became weak until he could no longer carry buckets of water up and down the mountain. He could no longer earn any more money. However Pablo was sitting on a beach while earning money from the pipeline he created many years ago. He never worked again.
Bruno was focusing on Active Income while Pablo was focusing on Passive Income.
The moral of the story is, you can not work 40 hours per week for the rest of your life, there will be a time when you need to retire or unable to work due to unexpected circumstances such as medical bills, being fired from your job or injury.
Active Income VS Passive Income
When we talk about Active Income, we are talking about the type of income we are normally working for.
Here are 2 examples of the ways you earn your money through Active Income:
- Your Job.
- Your Business.
Active Income is any work that you need to do in order to earn money. It could be graphic design, web design, writing website copy, working as a receptionist, working as a stock trader, working as a lawyer etc.
Whatever you’re doing, you’re actively working for money.
The advantage of active income is that it gives you money fast. You work for a week at a job and you get paid for it. It pays your bills which also come in regularly.
Passive Income is all about earning money without you working for it.
There are many different ways in which you can earn passive income, here’s some examples:
- Real Estate
- Book Royalties
- and much more.
Active Income Vs Passive Income Conclusion
What I’ve learnt from my previous experience of earning passive income is that it requires upfront work, usually without pay but once you’ve setup your passive income stream, you can leave it forever and get paid forever.
A good idea while you’re building your passive income structure is to work on your active income but work on your passive income structure part time. That way your part time passive income project will snowball into a big income stream and that is the day when you’re financially free.
If you would like to know more about active income and passive income, I highly recommend reading the book “Rich Dad Poor Dad” by Robert Kiyosaki.