Making Money: Active VS Passive.
Odds are that if you are over 10 years old you have done something.... something... for money. Cleaning out mom and dad's car for a quarter or starting a job at McDonalds when you were 16. or that corporate job in the big city after you finished your Masters degree. The world revolves around cash. We all learn its power at an early age, the more of it you have the more you can do. so obviously we want more of it than less, the question is
How do I make more money?
Well there are as many answers to that question as "what can money buy" which I can imagine borders on the infinite. and perhaps then some. But lets break it down into 2 types. Active and Passive.
Active Income
This is probably the one everybody is familiar with.
You trade hours of your life for money. You find somebody that wants "X" amount of work done for "Y" amount of pay. Your first job was probably like this. Making 5.15$ an hour to bag groceries or flip burgers. You showed up to work and punched a clock. "a direct exchange of time for money" This is the basic principle of an Active Income. Time for Money. and these are some of the easiest ways to make money. Mainly because there are more Active Income jobs than passive. and in today's economy people are fighting over them left and right. I would like to think that things are ticking up but time will tell.
There are some inherent Pro's and Con's to an Active Income.
Pro's
Active Income is generally easier to come by.
You know exactly how much your going to get for your time. (if you don't your doing it wrong)
The time you put into working directly correlates to how much you bring home.
You will see results from Active Income faster than Passive Income.
Con's
You have less time for yourself (because your spending it working)
The time you put into working directly correlates to how much you bring home. (see pros)
In order to make more money you have only 2 choices.
- Work more (Which is limited because there are only 24 hours in a day)
- Get a raise (Easier said than done)
Passive Income
This is the best way to make money. The concept of Passive Income is to create a system that once made you can step back and it will keep generating income for you, even when your no longer working! How does one do this? well, every artist gets royalties off their works. George Lucas could never do another thing in his life but will still make money every time somebody buys a copy of Star Wars. Same thing with graphic design artists, Bloggers, book writers, etc etc. You create something that people will want to spend money on in the future. another way to generate passive income is interest on money. Lets say you had 3,400,000$ in a bank account earning 3% interest *not hard* it would generate 100,000$ a year for you... forever!. that's much better than pulling 100,000$ out a year earning no interest, then it just lasts 34 years.
There are Pro's and Con's to this as well.
Pro's
- Generates revenue even when your not actively working. You could be earning money while fast asleep.
- Your no longer trading your time for money so you can do what YOU want with YOUR time.
- It can provide you with a much longer stream of income (who says the money stops when you die? your kids can benefit to!)
- Ability to make more money than active income. - in an active income your limited by the hours you can work and the rate you get paid for those hours, in passive there is no limit on either.
Con's
- you usually don't make a lot of money all at once (unlike active where you get your paycheck)
- It can take a long time to set up a system
- Systems can fail. eventually you might stop earning money.
Semi - Passive income (hybrid income)
OK, so Technically there are 3 types of Income. Semi Passive income is a hybrid of Active and Passive. In a semi passive income structure you have set up a system that will continually make you money (even when you are not there) but it does require you to actively manage it from time to time. A good example of this is owning your own company, You hire people to make money for you. You pay them an Active Income *fixed rate* and you generate a semi passive income from it, from time to time you have to show up and make sure the system is still running properly.
Another good example of this is being a Land Lord (like what i do!) you can rent out Land, a House, a Room. You generate income monthly from people using your property but you have to show up from time to time and make sure that its in order.
Pro's
- Owning a company has the potential to make HUGE amounts of cash *see any of the top 500 companies in the USA or the world*
- Also frees up time for other endeavors.
- A company or property being rented out (or whatever system your using) can be sold (usually for large sums of cash)
Con's
- Takes more time managing a semi passive than a passive income.
So which should I do?
Try your hand at all three. then pick the ones that work best for you.
What I would recommend, find an Active Income job that you can work while setting up a Passive (or semi passive) Income structure. and never think you can only do one or two. That's the beauty of passive income, you can set up the system then let it go and while its making money for you, you can create another system that will make you more money. (think about how many movies most producers have put out, all generating income)
In fact i HIGHLY recommend that you have multiple streams of income from as many passive and semi passive income sources as possible. a few reasons.
1. More money (obvious)
2. If you loose one you still have the others (not putting all your eggs in one basket)
3. Eventually you could be able to live solely off passive income and be able to use your time as you see fit.
What do I do?
I have my main job (active income)
I have 2 Semi-Passive income's as well (one of which is renting out a room in my house, the other is a job that I only need to put about 3 hours in a week but generate 15 hours worth of income)
If I lost any 1 of these I would be hurting but not financially dead. couple that with my emergency fund (see earlier post) and I would be OK for quite some time.