Active vs Passive Income

Entrepreneur 8 Comments

Income Sources
In general all of the money you earn online can fall into one of two categories: Active or Passive Income. Each type of income has its advantages and disadvantages in my opinion and that’s what I’m going to explain.

Active Income
Active income is the money you really have to work for. It includes freelance work, salary jobs, commissions, etc. For some this may be the easier of the two income sources to tap initially because you can get right out there and start earning whereas passive income takes awhile to establish.

Passive Income
Passive income on the other hand is income that comes from sources that don’t require your direct involvement. In some cases to set them up might take some hard work and long hours, however once in place they follow the set it and forget it strategy for earning. Passive income is generally the more favored type of income simply because you can work less and earn just as much as an active income.

Popular strategies for creating passive income are embedding affiliate links in archived blog posts, placing advertisements on your websites and selling a product through your own affiliate program. Of course with all of these things you could do more work to optimize earnings and boost revenue, but the key is you don’t have to, you still have income coming in for very little work.

How Passive is it?
While the idea of sitting back and letting the money pour in may be an attractive one, chances are it’s not going to happen. Passive income still requires a lot of work to develop. Think of it as a baby; it’s born and can’t do anything for itself, but as it matures into an adult it can do more itself and produce more and then finally you are old and grey and ready for it to take care of you. Slightly exaggerated, but you get the point.

Which is better and why?
Chances are from now until retirement active income will be part of your monthly earnings and that’s not a bad thing. There are many ways to make money online, both active and passive, and what you want to do is strike a nice balance between the two sources. Over time your goal should be to increase your passive income level while decreasing your active income level. This frees up your time to enjoy your earnings and develop new (and hopefully passive) sources of income.

Good Luck!


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    1. 1 Matt Huggins June 13, 2007

      I think it’s worth understanding that passive income is still a result of active involvement. This is especially true for bloggers. Take a look at Darren Rowse (ProBlogger.net) for example. He’s been blogging for years, and while he’s enjoying the fruits of his labors in passive income through deep linked topics that have been referenced by many for years, he still needs to remain actively involved in blogging to really maximize his passive earnings. (e.g.: blogs often appear at the top of search engines because they are updated so often; if Darren stopped updating, he would gradually struggle to hold his top ranks for various search phrases.)

    2. 2 Erik Karey June 13, 2007

      Yes definitely Matt. There is a lot of work involved no matter how you make money. By working hard to create areas for future passive income now, you can increase earnings down the line.

    3. 3 Success Blogger June 14, 2007

      Way to go in your attempt to encourage everyone to create wealth streams as I like to call it.

      Once you have set these passive streams up don’t forget to start investing them with good old traditional savings vehicles based on your personal risk levels.

      Its all about what you keep and how fast you can double and triple it.

      Great food for thought.

      Work is the common denominator! Let’s all get to it.

    4. 4 MorganLighter June 17, 2007

      Erik – Great, I mean GREAT!! article. Coming from a financial planning background, your sage advice should be plastered all over the web. We all should live to work not work to live and by developing a passive income that, at least, covers your annual expenses, will afford you the opportunity to tackle the many other richly rewarding projects, dreams, whatever, that you might wish to follow.
      Take care.

    5. 5 Paypal2u Bloggers July 12, 2007

      The day the blogs dies will always related to the day the blog didn’t have any update for more than a week.

      The traffic flows will be smaller and at the end, the blogs will died until the new updates being posted on the blogs.

    6. 6 Marrisa July 13, 2007

      Hi,

      I don’t think it’s safe to rely on passive income only.But of course, it would be fabulous not to work that much and earn a lot.

      I also find it a little bit difficult to get to that position, where you don’t need to work any more.

      Anyway, I liked the article and I also like people sustaining this idea…of working less :)

      Regards!

    7. 7 Erik Karey July 13, 2007

      Very true Marrisa. Passive income is nice to have because if you decide to take some time off or can’t work on a certain day, the money is still rolling in where as you need to be working all the time to be earning the active income.

    8. 8 Karen Davis October 7, 2008

      This is a good explanation of the difference between active and passive income.

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