Why you need to earn passive income

Why you need to earn passive income

Active Income

Active income is money earned in exchange for performing a particular service. This is income that you earn once a particular service has been delivered where you exchange time for money. This means that you need to put in considerable effort to earn that income.

This means that you must either be working in your job or business in order to earn it, without you doing any of the work you will not be getting paid. Examples of this income are salaries, wages, commissions, tips etc. As we all know there are only 24 hours in a day, so this means that there is a limit as to how much you can earn. Also, when you pass away, you stop earning active income as you will no longer be able to physically continue doing the job and your beneficiaries cannot inherit your job. 

Passive Income

Passive income, on the other hand, is money that you earn without being physically present or doing any job, that means you do not exchange your time for money. It is income which flows in regular intervals without the need for putting in a considerable amount of effort to create it.

This is what is often referred to as making your money work for you. Generally, you invest your money in a product that will generate an income such as shares, unit trusts, ETFs, properties etc. There is no limit to how much passive income you can earn as you do not have to physically do the job. Another benefit of passive income is that you can continue earning it even when you are physically unable to work such as due to injury or illness or even upon death, your beneficiaries can continue to earn the passive income. 

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