In this post, I’m going to introduce two key concepts in order to help you increase your financial literacy. I came across with these concepts in 2006 while reading the book Rich Dad Poor Dad written by Robert Kiyosaki. They changed my mind set about money and, I bet they will change yours.
What is Active Income?
Active income is the money you receive from your job. Your salary is an earned income. When you work for active income, you trade your limited time which is your most valuable asset for money. You are selling time and energy for money. You have to show up to some place and work in order to make money. The main disadvantage of Active Income is when you stop working, income stop flowing in to your pocket.
What is Passive Income?
Passive Income is the money you earn from your investments. Passive income comes from dividend paying stocks, interest in savings accounts, interest generated by a certificate of deposit, bonds, businesses or renting real estate. The main advantage of Passive Income is that you do not need to work for money. Even, if your are not working, money keeps flowing in to your pocket.
If you want to be wealthy or maybe retire early in your life, you have to learn how to develop multiple passive income streams. The goal is to have a steady cash flow coming in each month from different sources. The problem with Active Income is that it require your hard work and time and, both are limited. There are only 24 hours in a day and, we are able to perform just some of these 24 hours. Active income will stop if you become fired, ill, or unable to fulfill your job duties. However, Passive Income can keep flowing in for the rest of your life.
Which type of income is the best?
Both type of income will help you create a better financial future. Active Income will help you generate seed capital to invest in assets. These assets will generate passive income stream enabling you to get more assets in the future. The combination of both type of income is the foundation for creating a sound financial future for you and your love ones.
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Cheers, and all the best