Income can be active or passive; active income is acquired by performing an activity or rendering service in exchange for a benefit. The process includes salaries, commission payments, tips, or revenue generated by a business.
As for passive incomes, they are those that you do not need to dedicate time to or only need one or two hours a week. We can include real estate investments, stock investments, or sales of digital services.
What is an asset? Why is income an asset?
Assets are everything a company or business has; they are ordered according to their liquidity and the ease they can convert into cash. For example, the products you have for sale are an asset because you will make a profit from the sale.
On the other hand, revenue is the financial results from selling a product or service. In the accounting ledger, they are detailed in different places, but revenue is an asset because you get it after selling one of your assets.
You get active revenue when you need to make some effort or be directly involved with the activity to get paid. Employees earn active income because it results from a service provided to a company or business.
Difference between active and passive income
As mentioned before, you can have active or passive income; there are five basic ways to differentiate them:
The effort required to obtain them
Active income requires active effort and the necessary knowledge to accomplish the tasks. You only need the initial step to invest or establish the business parameters for passive income.
The necessary time
To obtain an active income, you must invest no less than 8 hours a day; the time depends on the city and the type of work. Continuous investment of time is the main characteristic of active income.
Passive income does not need a lot of time, some of them, you only need to check them once or twice a week or a month. But that doesn’t stop you from earning money 24 hours a day, every day.
The potential or level of education
Almost everyone globally has an active income because they work in a company, company, or business. To get a good job is considered the profession or degree of study of the person.
Passive income can have great monetary benefits regardless of the degree of education of the person, but it requires perseverance and concentration to achieve good results.
Lower tax bracket
Active income does not have as many tax benefits as passive income; earned income is taxed at the highest level. Acquiring passive income is more varied; you can have it from bank deposits or rental income. They also come from investment in government bonds.
One continues to operate while you sleep
The biggest benefit of passive income is that it continues to produce profits even while you sleep; for active income, you need to stick to a set schedule, and, for higher yields, you have to double the hours.
Is it better to have active or passive income?
Regardless of whether it is active or passive, the important thing is that it allows you to cover your basic needs and quality of life. You can even generate both incomes at the same time through different methods. In conclusion, both payments are beneficial when they have the potential to allow you to fulfill your duties.