Passive Income vs Active Income

Various economists view income as an inflow of capital or money. Hence, if you have been receiving money as an allowance from your parents, uncles, or grandparents, then you have income. If you have been earning a monthly salary, then of course, you have income. Moreover, if you have been receiving money to your bank accounts in the form of interest, then you have income.

As you can see, little or great, most of us have income. However, one of the most important things to understand is the difference between passive income and active income.

Let’s start first with Active Income.

Active income is basically the income we get when we are active. This is the form of income we receive everytime we work as an employee of a company, every time we sell a product, et cetera. Hence, the income we receive is based on our being “active” or “doing something”. In short, the income will keep on coming, as long as we keep on working. The income will stop if we stop working. A lot of us have this type of income. However, the question is do we also have the next type of income.

The second type of income is Passive Income. 

Passive income is the type of income we get even though we are passive or not doing something. For instance, if you are already an established businessman or entrepreneur, even though you are sleeping, you are still earning. Take for example Henry Sy. Obviously, you don’t see him selling clothes at the SM Department Store, or getting your deposits at Banco De Oro. However, even though he doesn’t work, he gets billions of pesos from his businesses like BDO and SM. Another small example are people who bought lands. Did you know that people who bought lands 20 years ago, can now sell those lands for a price 5-10 times as much as they bought it? These people never nurtured this lands. These people probably didn’t even bother visiting these lands after they bought it. However, the price of these lands appreciated in time.

To conclude these short essay, I will leave a question – Is it really Passive Income vs Active Income? Kinda like Pacquiao vs Bradley? Or can we have both passive and active income?

Honestly, I believe that in order to be really financially free, one must have both. Keep your jobs and your work because it is where you will be getting your capital for your passive income. Try to achieve passive income earlier on because someday, you might not have the enough strength to work as you have before.

On my later posts, I will share ways on how to earn passive income.

- The Street Smart Investor ( some points from this essay was taken from “Investing in Stocks” by Louis de los Angeles)

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