Some people who knew me here at read.cash knows the story where I have invested in some different businesses. And I’m planning to invest more to achieve a life where I can take a vacation without worrying about money – the power of passive income.
So what is passive income? What is the difference of active and passive income?
The difference between active and passive income
Active income entails exchanging your time for cash. Formal education encourages us to go to college, earn a degree, and find a job that will compensate us for our time. A nurse manager, for example, makes 1000 dollars per month, which is 250 dollars per week, 50 dollars per day, and 6.25 dollars per hour if he works 8 hours per day, 5 days per week. That equates to a yearly income of $12,000 USD. To earn a million dollars, he would have to work for about 80 years, not considering taxes and expenses.
Simultaneously, the hospital owner makes money without exerting much effort. He has the option of choose how much he wants to be involved in management, but he has a nurse manager who handles the most of the work. As a result, he makes money without doing much labor while others work for him. This takes us to the topic of passive income.
Having some form of asset that creates money for you without requiring your time in return is what passive income is.
A website with advertisements is a valuable asset. You earn money every time someone views or clicks on an ad. A vending machine can also be beneficial. You make money every time someone puts a coin in the machine to buy a drink without even having to be present.
A person with active income can spend his money on material items, whereas a person with passive income can invest some of his money in other assets or develop his current ones. In this way, he is able to spend money to make more money and increase his passive income.
Is it true that passive income is truly passive?
In the vast majority of circumstances, the answer is emphatically no. You may work for hours on end without making a penny at first, and you may even invest money in your assets. You must construct and maintain foundations. It takes time to obtain views and followers when you start a YouTube account. It's fantastic if you have a YouTube channel with some content that creates a nice passive income. However, some subscribers may abandon the service in a few years. Your niche's competition may increase, and new videos may surface. It doesn't mean you won't make money; but, if you keep your channel active, upload fresh video, and connect with your audience, your earnings will be significantly more than if you leave it alone.
The idea is that passive income isn't fully passive, but it does create income with minimal effort once you've completed the hard work.
To avoid becoming overly reliant on a single source of passive income, it is advisable to diversify your passive income sources. Let's imagine you own a property and rent it out. What happens if there's a tsunami, what happens if no one wants to live there anymore, or if you can't find tenants? You shouldn't put all your eggs in one basket. It's always a good idea to have more than one asset on hand in case something goes wrong. You can focus your efforts on a single source while still having some backup assets. However, having an asset that you are interested in is preferable because it will occupy some of your time. So you'd like to do something you enjoy.
It's harder to move forward and develop if you don't enjoy what you're doing. It's easier to move forward and develop if you enjoy what you're doing.
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