The Difference Between Active And Passive Income
I did a video on this topic a while back, and I still feel the need to keep hitting this nail again a few times every year, because I truly feel that the whole point of working in the Online Affiliate Marketing area is gradually lost in the haze if you don’t focus on the main point.
And the main point – or the main reason you got into this area – is because it builds Passive Income, with a view to build long-term wealth.
Active Income is when you work for Money.
Passive Income is when Money works for you.
(Or at the very least, your creation or your product has legs of its own, without you needing to prop it up on a daily basis)
Working as a high profile lawyer or banker is Active Income.
Owning a patent to a successful product is Passive Income.
Owning a corner store is Active Income.
Owning an apartment complex that brings in rental income is Passive Income.
Being a movie star is Active Income.
Incurring royalties from your hit single is Passive Income.
Owning a McDonalds is Active Income.
Being Ray Kroc is Passive Income.
Active income may seem faster, swankier and glitzier than passive income.
Active Income is more socially acceptable (because EVERYONE is doing it, d-uh)
But Passive income protects you from going bankrupt, props up your finances when you’re out sick and takes care of you when you grow old.
And that is because Passive Income is not subject to the 3 Constraints that Active Income is, such as:
1) Constraint#1 – There’s only so much time: Regardless of how much you get paid per hour, you only have so many hours of the day. So if you get paid $ 100 per hour of your time, if you live on Planet Earth you can only make $20,000 a month, give or take.
2) Constraint#2 – You need to Recreate Your Income Every Day or Every Month: If you stop going to your job from tomorrow, will your past work still pay your bills next month? Say you’re a heart surgeon, and you performed a life-saving operation on a friend last year. Will your friend continue to pay your bills while she is alive (seeing as she probably owes you her life)?
3) Constraint#3 – Your ability is very high-risk: If your income depends on your ability to fight lawsuits, or perform surgeries, or flip hamburgers, or show up to work daily, or drive a car – you may be greatly at risk. And that is because there is no guarantee that you will be able to demonstrate those skills tomorrow (God forbid). The minute you are unable to perform the magic, the music stops for you.
Now think about the person who holds royalty rights to Microsoft Windows, or McDonalds, or just sang a record album that hit the top of the charts.
Do you think these 3 constraints would apply to them?
Watch the video below:
Okay, so now the moral of the story is that you should only follow a line of work that gets you Passive instead of Active income. Of course, you’ll have to work your butt off for both, but Passive is more long-lasting and likely to build you long-term wealth rather than Active income.
In my next post I talk about the difference between long-term wealth and short-term riches…stay tuned! ‘