Active Income Vs Passive Income: How to Build a Passive Income Source

By MicaR | Online Venture | 9 May 2024


If you have to go to your workplace and do the job all day long and receive a paycheck at the end of the month, or the first week of the following month, that's an active income. Active income is an income that you generate by working regularly. if you have published a book and the book generates regular sales, and you earn royalties on the book sales, that is passive income.

Active Income Vs. Passive Income

Income is broadly classified into two types, active income, and passive income. Active income means you work regularly, possibly, every day, and make money. For example, if you go to a job on the weekdays and draw your salary by the end of the month, you are making an active income. Even when you are a freelancer and work on your clients’ projects, you are making an active income. Passive income, on the other hand, is the income generated by something you have done in the past and something that does not require a lot of work. If you have invested in the stock and if you receive dividends, that’s passive income. If you published a book a long time ago and if you earn royalties from the book it is passive income. Since you do not have to work regularly, you need to build passive income sources. You can build your net worth only through passive income.

Why You Need to Focus on Earning Passive Income

You can earn a living through your active income, you can even buy property from the money you save from your active income. However, the active income will never make you rich. You need a passive income source to build wealth. For example, you have a job that pays very well. How much can you expect to save from your salary, 5 percent, 10 percent? You may never be able to save more than 20 percent of your salary. If you can save just 20 percent how can you build your income because you might end up using your saving during emergency situations. Therefore, you need to build passive income sources. You will have to invest money to generate a return on your investment (for instance earn dividends from your stocks), invest in a business, and generate income (in the beginning you will have to be active, but later, your business will become passive income source).

Generating Passive Income is Not Easy

Not everyone can make a passive income. I am a programmer, I am also a content developer, however, my 80 percent income is active income. Despite my skills, expertise, and experience, I have not been able to earn much through my passive income sources. I have a couple of passive income sources, such as stock dividends, blogging, and cryptocurrency. I have invested in the stock market and I receive dividends, I also have a blog and blogging is a passive income, I have invested in crypto and I stake crypto to earn passive income. My passive income methods do not bring me a lot of money. I am freelance, and as a freelancer, I have to work actively on projects to make money. For instance, I can make $100 by designing one website, in order to make that money, I will have to work for 2 days (5 hours each day). I also sell items on online marketplaces. In order to generate sales, I have to work really hard in promoting my store and products, I also have to work on creating products. However, I believe some of my active income sources will convert into lucrative passive income sources in the future.

Generating Passive Income: My Experience

Investment dividends: Even though I have invested in the stock market, investment dividend is not my favorite passive income method. In order to minimize your risk, you need to diversify your portfolio. When you diversify, not all stocks will yield the same profits. Some stocks might give you profits, whereas some stocks might be at loss.

Rentals from a property: This passive investment is not available to me because I do not have a property to rent out and earn passive income. If I want to use this method, I will have to buy property. In order to buy property, I need a lot of money.

Royalties from creative: I have some digital products and I make passive income by selling digital products. This is my favorite way to make passive income because you do not have to invest, or even if you have to invest, you need little investment, and you do not have to work many hours.

In order to earn passive income, you do not have to work every day. Sometimes, active income can become a passive income, for example, business is an active income source, which can later become a passive income source.

You need to work really hard to build a passive income source. However, once you have built your passive income source, you will start earning money even without working or doing any hard work.

Passive Income Ideas That You Can Try Now

I will try to answer how viable these passive income methods are one by one:

Create a course: You not only need expert-level knowledge on the subject but also skills to create a course

Write an e-book: Even if you are a good writer, you need digital marketing skills to drive sales, or money to run ads.

Affiliate marketing: You need to be a very skilled marketer to become successful with affiliate marketing.

Sell photography online: It is a good method to drive passive income but you need to be a pro photographer and pro marketer.

Peer-to-peer lending: This is risky, your money may never be returned.

Dividend stocks: You need a lot of money to invest in stock.

Blogging is a good passive income source, however, forum posting and freelancing, and micro-jobs are not actually passive income sources.

If you are based in a low-tier country and if you are looking for passive income ideas, here are two ideas that you can try.

Renting your property: If you have a car, a house, land, godown, a flat, music equipment, light equipment, etc, you can rent out these things and make a passive income. Renting an apartment on Airbnb is one of the best ways to make money by renting your property.

Flipping retail products: You can acquire products from suppliers and resell these products to make passive money. This requires expert-level digital marketing skills.

How to Generate Passive Income From Real Estate Investment

There is no doubt that real estate investment brings the best passive money, however, in order to benefit from real estate you need to buy property in a prime location when you can rent it out. For example, you buy office space, shop space, a house in a prime area, or a piece of land in a commercial district. For that purpose, you need a lot of money. Not just hundreds of thousands, but millions. For example, in my place, if you want to buy a house in a prime location you need to spend at least 30 million in local currency. If you want to buy a shop in a commercial building, you need to spend at least 10 million. That's a lot of money. If you already have that kind of money, you can even earn passive income by depositing your money in a fixed deposit bank account. Real estate investment also does not always bring profits, sometimes the market goes down and you are unable to rent out. For example, during this coronavirus pandemic, a lot of shops were closed and the landowners who rented out these shops lost money. If you buy on loan, real estate can be a risky investment.

Making Passive Income Through a Dropshipping Business

Dropshipping can become a good passive income source provided you have a lot of money to spend on ads and you are a good digital marketer and SEO expert or have money to hire experts to do digital marketing and SEO. If you use shopify, Oberlo, and other tools like these you might have to spend just about $1000 to get started with your dropshipping business, yet there is no guarantee that you will actually make money. It is really difficult.  Don't have this impression that the moment, your store is launched people will rush to buy from your store. Dropshipping on your own store is very expensive. If you do dropshipping on third-party marketplaces like ebay or etsy, it might be less expensive because your cost of running a website will be reduced and you might make some money.

3 Platforms to Earn Passive Income on Autopilot

Building passive income on autopilot is very important because that’s how you build your net worth. Passive income o autopilot means you will be earning without doing hard work or without spending a lot of time. Here are three platforms where you can build a passive income on autopilot

Etsy: You can sell handmade items on Etsy. If you are creating physical products to sell on Etsy, you will have to work regularly but if you sell a digital item, you do not have to create products again and again, yet you will generate regular income. You can sell printable and digital downloads on Etsy to make money on autopilot.

Amazon: Amazon allows you to make money in many ways and interestingly, most of these methods are passive. For instance, you can promote Amazon affiliate products and earn commissions, you can do FBA business, you can publish on KDP and earn royalties without working every day or spending a lot of time.

How to Build Passive Income

Technically speaking you can generate passive income without any investment. For example, if you write and publish a book on Amazon, it does not cost money but you can earn a lot of passive money. However, this is not possible because you need a lot of money to advertise your book. Try a lot of things and then settle on one that is working for you. When I started I tried on a lot of things such as blogging, vlogging, etc. but I settled on blogging and I don't regret that I chose to blog as a passive income source. I am not earning much, but I earn from my blog.

My primary aim in launching a blog was to make a lot of passive income. Well, I have managed to build passive income but it is not very big. However, I am happy that I launched my blog, I have not only managed to provide genuine information on my niche but also have established my authority

The Best Ways to Build Passive Income

I earn passive income in multiple ways:

Blogging: I am earning passive income from my blog. I manage to earn $2 per day on average from my blog. When I launched my blog, I did a lot of work but these days I don't even spend 30 minutes per day on my blog yet I am earning regularly from my blog.

Affiliate marketing: You can earn passive income through affiliate marketing, but this job is reserved for an experienced marketer, who knows how to use the social site for the maximum benefits, who has a lot of following on social sites, and also a marketer, who also has a high traffic website.

Selling Online: Selling Online means you sell products and services through your own store or third-party stores. I do not think selling online can be classified as passive income because, in order to sell online, you need to constantly find out the winning products or develop a winning product, you also need to market your products aggressively to generate sales. And these works require a lot of hard work

Dividends: Until 2019, I was investing in the stock market every month. Even though not all stocks are profitable, some of my stocks provide me with good dividends. Sometimes I receive cash and sometimes I use my dividends to buy new stocks. Investing in stock is risky, your stock price might go down, and you might receive fewer dividends. However, if you don't sell your stocks when the market is bearish, you will not actually incur a loss. 

Businesses: I have helped a few friends to launch their businesses. I have received equity against my investment. These businesses are profitable and I receive a return on my investment quarterly.

Crypto staking: About 90 percent of my crypto assets are on Binance and Binance offers high staking rewards. I have staked my all assets and I receive profits every day. It is a small amount but it is better than nothing.

Blogging as a Passive Income Source

Yes, blogging is one of the best online businesses. Yes, blogging is one of the best passive income sources. Yes, there are many ways to make money from blogs. However, if you have just started blogging, you need to understand one basic thing about blogging. It will take a long time to build passive income from your blog whether you are using advertising networks like Adsense or affiliate networks like Amazon. I have been blogging for more than two years, I make money from Adsense as well as Amazon, however, I still don't make enough to receive payment every month, and I don't reach the payment threshold on Adsense every month. I get paid every 2-3 months. My average earning from my blog is $100 per month, I use a lot of ad networks to make that amount. Well, this is not a great payment, but yes, it can be still termed good because all of my hard work was done in the past and these days I don't spend many hours every day on my blog. Actually, my blog earning is free money. That's the best thing about making money from a blog.

Having a blog is undoubtedly one of the best ways to build passive income. You can earn passive income through your blog in multiple ways.

Balancing Passive Income With Active Income

Making money from a job, or getting a job, is not a passive income. Passive income means you earn money without spending a lot of time working or earning money from something that you have done in the past. You earn from your job by working 9-5 hours (or any other day hours) for 5 days a week, this is not a passive income. You earn a passive income you are earning royalties from the books you have published in the past, even earning profits by staking crypto currencies.

 

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MicaR
MicaR

Web Designer and Content Creator


Online Venture
Online Venture

A blog on Business, Finance, and Making Money Online. The blog offers useful and interesting articles on how to start and run a business and how to make money online.

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