A few decades ago, in our country, the concept of income almost completely corresponded to wages at a state enterprise - almost without options. The people saved their accumulated savings on a savings book. Now, the ways to ensure existence are simply a wagon. Someone has opened his own business, someone has invested in securities and lives happily ever after (why work now?), If only he has not yet burned out. Someone favorably rents an apartment in the center of the capital and also does not hurry to the machine daily. Well, someone (and most of them) still gets up a bit and goes to the office or to the factory.
One way or another, we all receive some kind of income from our own activity, for which we live. But not so simple. It turns out income is strife. And maybe it can be different - active or passive. What sometimes the modest Russian rentier who surrenders the "extra" odnushka on the outskirts of a provincial town does not even guess. Well, let's talk about this topic - today's article is devoted to the type of income that any employee has encountered.
Let's deal with the concepts
The term "active income", derived from the English active income, refers to one of its types, based on the provision of services. The nature of its receipt is the opposite of other types - passive and portfolio income. The name itself indicates that the recipient plays an active role.
With passive income, the sources are those in which the recipients are not directly involved. We give an example: a specific person works for a salary and at the same time rents an apartment. That is, both types are available. Revenues from active operations - this is wages, the second - rental payments. Portfolio income, which some economists consider as a kind of passive, involves investment as sources.
Active income: options
The whole variety of types of active income comes down to money paid in the form of a salary. It can be a permanent salary or suggest hourly wages. This also includes all the variety of overtime, bonuses, gratuities, and so on. Commissions paid for agents (for example, selling real estate) also apply to this article. That is, everyone is able to create an active source of income - it is enough to get a job. After all, nobody took away the ability to work with us.
This form (active income) also includes your profit if you "steer" your own business and participate financially in it. It is not about buying a ready-made business with the goal of exclusively generating stable profits without the intention of developing your own business. In particular, in the US tax administration it is customary to consider regular business with financial investments as the basis for classifying the income received as active.
Ask a specialist
If you don’t fully understand what the difference is, this is active or passive income (when it comes to profit from your activity), you can resort to the services of a financial consultant. You can also figure it out yourself by analyzing the criteria that the state tax services resort to for the same purpose.
The vast majority of options involve the payment of active income to its recipient in pure form, that is, after all possible tax deductions. Salary in this case is a typical and most common example. This rule does not apply to individual entrepreneurs or those who work as an independent contractor.When receiving money, these people are personally responsible for the taxes paid and the timely declaration of income.
Consider the details
Now we’ll touch on the concept of active income, its advantages and disadvantages in more detail. We also consider the current topic "active and passive income - specific differences" in order to finally clarify for ourselves all the nuances of the issue.
In fact, all types of personal budget revenues can be attributed to only one of its two types - active or passive, since the investments mentioned above (portfolio income) are one of the varieties of the latter. Moreover, the types of active income are all those ways of earning when the receipt of money in a person’s personal budget depends on his own work.
These are all types of traditional work, part-time job, part-time job - both in real life and on the Internet. The main cardinal difference between active and passive income is that the latter allows you to replenish your own budget without daily labor efforts, but it requires investment of initial capital, sometimes very, very significant.
Income and virtual reality
Is online income possible? And if so, what is it? For some reason, many ignorant citizens think that nothing can be earned on the Web - everything is entirely a scam and attempts to divorce money. Others fall into the opposite extreme and, having read the tempting promises of instant enrichment, which the World Wide Web is littered with, search for a magic money button for months and years.
Both are wrong. You can make money on the Internet - just like in real life. It is about the implementation of specific actions - writing articles, remote work by anyone - a designer, accountant, consultant. It's not about whether you are on the web or not. If you perform certain tasks, receiving a stable linear income for this, that is, changing your own time and work for banknotes (albeit in electronic currency) - we are talking about the same active income, that is, about the most ordinary work, albeit with the use of latest technology.
What is the difference between remote work and online business
Another thing is the Internet business, when, for example, you create your own e-book (or by buying resale rights like that, which is called reselling), launch it in circulation. Such an information product can be sold an unlimited number of times.
Having established a business from a technical point of view (payment, customer feedback), you can relax - you do not need further regular efforts. Why not passive income?
Back to the real world
As examples of it, not in the virtual, but in the real sphere of our life, we can name income from deposits, dividends on securities (the same portfolio income), letting property (not only housing) for rent, profit from investing in some or asset management companies.
A traditional source known to our parents in Soviet times is its placement of money in a bank deposit (for a passbook). This option has all the signs of passive income. This is the need to possess the initial capital, the ability to choose the investment object and all the inherent risks in the form of instability in the financial market and the likelihood of a large or even complete loss of the invested. While no one will take away your ability to work and sell your own working time (we are not talking about old age or loss of working capacity due to illness).
What will happen if you stop working
The amount of income (active) considered by us in the article, which is based on constant labor, is directly proportional to either the results of the expended forces or the expended working time. But its common characteristic is the cessation of receipt of money in the personal budget immediately or after some time upon termination of labor activity - when active sources of income run out.
What does "after a while" mean? Suppose you were fired and you are registered with the employment center. For a while you hold out on benefits. But, formally speaking, these payments can already be attributed to passive income, which you receive on the basis of previously invested capital - your labor at the previous place of work.
And if you don’t work?
What are the differences between active and passive income? In contrast to the first, the second assumes the possibility of income even when it is not necessary to work. To create such a source, one way or another, you will need to invest a considerable amount of labor or money - passive income by itself is not taken from nowhere.
For active income, this requirement appears only when it comes to creating your own business. Basically, people sell their own labor - most of us have nothing to sell and invest.
I wonder how to classify the situation with receiving a pension? Formally, this can be attributed to passive income. But if you think about it, this is an illusion. The lack of investment in this case is deceptive. To receive his modest income for life, a pensioner spent his whole life investing in the form of contributions to a pension fund.
Active and passive income: the difference in the number of opportunities
Do you know the concept of diversification? This is a synonym for diversity, and in the case of active earnings, there are very few options. In fact, human capabilities are inherently limited by a fairly narrow scope. You cannot physically combine active earnings in two or three or more jobs. Most often, we get active income from only one source in the form of the main work and occasionally earning money (but these amounts are no longer important).
Diversification of the other of the incomes - passive - is much wider and is not subject to restriction. No one is forbidden to divide the available capital into parts, each of which can be invested in absolutely any project that can bring passive income.
About Risks and Losses
It is the weak diversification of sources with active income that carries a high risk of losing both it and the capital invested there. A typical example is that you were fired from work or the government closed the business you organized. In this case, you will lose both.
With the strong diversification inherent in the opposite, the situation is much better. If one of the sources of passive income has closed or gone bankrupt, its owner will receive profit from the others - remaining.
Is it possible to get rich at work?
Almost always, active income is characteristic mainly for those who, by their financial condition, exist below the poverty line. A few exceptions are the stratum of those who hold a serious position or have a valuable profession with a high salary, and the percentage of those is not too high. These people can count on a certain financial stability, but at the same time they rest against a constant ceiling, that is, dependence on their own highly paid work becomes crucial in their life. If, due to some unfortunate combination of circumstances, a profitable place is lost, the source of income will instantly cease to exist for them.
Those who occupy a position well above the poverty line, as a rule, have a certain capital and tend to move from an active type of income to a passive one. They first create a small source of it, then gradually build up. With a skilful approach to business, such people have every chance of financial independence in the future.
Where do millionaires come from
School, the state and parents taught us that in order to achieve success in life and stability in material terms, you should work hard, having mastered a previously good demanded specialty. In practice, the situation looks completely different.Take a look around: are the most financially successful people the ones who work tirelessly? On the contrary, these honest workers most often for years and decades can not escape from poverty, living life from paycheck to paycheck.
The winners are those who managed to save at least some amount as initial capital, then invested it profitably and continue to look around in search of new promising sources of investment. It is from the layer of such people that millionaires and billionaires come out. Rereading the stories of their success, you come to the unequivocal conclusion - if in your life there is only an active income, and you haven’t had to think about anything else, your chances of success, alas, are minimal.