We all want to make a profit in the long run and achieve financial freedom, but to do this, you need first to understand the difference between active income and passive income (check out our video or continue reading).
Passive Income
Passive income is described as income that is consistent and takes little to no effort to sustain, as you are mostly uninvolved. To optimize the benefits of receiving a passive income, it is recommended that you diversify your portfolio with several income sources rather than sticking to just one.
Active Income
Income earned as a result of services given is referred to as active income. Examples of active income include:
- Salaries
- Commissions
- Wages
You must do something to receive active income. To earn that money, you’ll need to put in some effort and time.
Why You Shouldn’t Rely Only On Active Income
One of the world’s richest men, Warren Buffett, once said, “Never depend on a single income.” It’s so crucial nowadays to have multiple sources of income and not just rely on your salary. Doing this makes you vulnerable to poverty, and you want instead to be financially free.
To be financially free, you need to have a positive cash flow. You can learn about cash flow and why it’s so important in our video What is Cash Flow and Why it Matters to Financial Freedom.
Conclusion
Knowing the difference between active income and passive income will help you reevaluate your finances. You can make new financial goals for the short and long term once you rely on more than one source of income. If you want to learn more you should check the following video: Financial Freedom 101 – Active Income vs. Passive Income