Active vs. Passive Income

passive income

Passive Income

One of the biggest differences between the wealthy and the less wealthy is that wealthy people earn interest and everyone else pays interest. It is important to realize that money is a tool that can help you to achieve your goals.

Difference between active income and Passive income

Active income is something where you will be investing lot of time. For example consider you are working on a daily 9 to 5 job and get paid at the end of the month. Here you are investing a considerable amount of time and get paid for that, if you stop working you don’t get paid. So you need to keep investing time to get paid. This kind of income is called Active income.

Passive income is something where you will invest less time or considerable time only during initial setup. For example you invest in Stock and stock pays you dividend frequently without you doing much. Or you develop an app and post it to Google play store and Apple store and get you get paid for every download or through monetisation. In this case you invest your time only during the initial set up and the product or service you developed during that time starts earning money for you over a period without you investing much time further. This kind of income is called Passive income.

The easiest way to achieve this, is by investing in the Indian economy which is growing at 7-8% (GDP) without accounting for inflation which is approximately 5%. By investing in the Indian economy, I mean starting a SIP in Nifty Index fund. For Instance, a SIP of 5000 rupees per month for 20 years in NIFTY becomes 74.86 lakhs, assuming an annual return of 15%. Another way is to start as early as possible. Warren Buffett remarks, “ I made my first investment at age 11. I was wasting my life until then.”

The earlier you start (investing) the better it is, as your money compounds for a longer period of time. For instance, a SIP of 5000 rupees for 30 years in NIFTY would grow to 3.46 crores, as compared to 74.86 lakhs in 20 years. Therefore, if someone asks you what is the best time to invest in order to meet your financial goals, your answer should be right now. You reap what you sow. In the case of compounding, the earlier you sow, better the harvest is.

Passive income includes regular earnings from a source other than an employer or contractor. The IRS says passive income can come from two sources: rental property or a business in which one does not actively participate, such as being paid book royalties or stock dividends.

Ways to  achieve passive income

Selling information products

 One popular strategy for passive income is establishing an information product, such as an e-book, audio course or DVD, then kicking back while cash rolls in from the sale of your product.

Write an ebook.

This can be a lot of work upfront, but once the ebook is created and marketed it can provide you with a passive revenue stream for years. You can either sell the ebook on your own website or offer it as an affiliate arrangement with other websites that provide content related to your ebook.

 Become a referral source

Every small business needs referral sources in order to maintain sales. Make a list of small business providers that you use on a regular basis and feel you can recommend to others without reservation. Then contact the owners and see if they have any kind of cash referral offers available.

Buy a blog

Thousands of blogs are created every year, and thousands are either completely abandoned by their owners sometime afterward. If you can buy blogs with a reasonable amount of web traffic — as well as a demonstrated cash flow — it could be a perfect passive income source.

Rental income

Investing in rental properties is an effective way to earn passive income.But it often requires more work than people expect. If you don’t take the time to learn how to make it a profitable venture, you could lose your investment and then some, says John H. Graves, an Accredited Investment Fiduciary (AIF) in the Los Angeles area and author of “The 7% Solution: You Can Afford a Comfortable Retirement.”

 Affiliate marketing

 With affiliate marketing, website owners or bloggers promote a third party’s product by including a link to the product on their site.

Online Arbitrage

Arbitrage is defined as, “The simultaneous purchase and sale of an asset to profit from a difference in the price.”

 Make an online guide

If writing articles or creating videos isn’t your thing, and you want to make money online, try creating an online guide.

 Peer-to-peer lending

 A peer-to-peer (P2P) loan is a personal loan made between you and a borrower, facilitated through a third-party intermediary .

Buy and Sell Domain Names

Internet domain names can be valuable! That’s why famous people rush to trademark their children’s names because if someone is going to pimp out a baby.

Create an App

If you own a smartphone or tablet then it’s safe to assume you have several apps downloaded. But have you ever had an amazing idea for an app? If so, you could consider hiring a programmer to create your app for you. You could then sell it on the App store for residual income.

CD Ladders

Building a CD ladder buying CDs (certificates of deposits) from banks in certain increments so that you can earn a higher return on your money. CDs are offered by banks and since they are a low risk investment they also yield a low return. This is a good option for the risk averse.

 Refinance Your Mortgage

This may sound strange in a passive income article, but refinancing your mortgage can be a great way to free up a lot of income and save you $100,000s over the life of your loan. That’s a pretty good gain in my book.

Driving

uber: The hourly pay after expenses varies from city to city, but you can expect to make around $10 an hour. In larger cities, it will often be much more and in smaller cities, sometimes a little less.

Dividend-yielding stocks

 Shareholders in companies with dividend-yielding stocks receive a payment at regular intervals from the company.

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