What is Non-passive Income?

What is Non-passive Income

If the phrase ‘non-passive income’ is new to you, you may be surprised to discover that it is by far the most common way of earning money. Out of the global population of over 7 million people, it is estimated that some 3 million earn money in this way.

So, what is non passive income and what kind of lifestyle does it involve?

More importantly, are there are any other options for anyone who decides that this isn’t right for them?

What Does It Involve?

Non passive income is also often called active income. This perhaps gives you a clearer idea of what it is all about. It is active by nature because you only earn money when you do something.

A good example of this is when you have a full-time job that pays you a fixed salary. You only get paid if you keep on fulfilling your hours and obligations every day. This is by far the most common way of working all over the planet. Indeed, millions of people spend 40 years or more of their lives in this sort of routine.

Why Isn’t This Perfect for Everyone

For most salaried workers, the thought of breaking out of this way of living will flit through their minds from time to time. Yet, the perceived security and dependability of this approach can make it difficult to change.

Non-passive income also includes other ways of making money as well. For instance, you might earn commissions or run your own business on a day-to-day basis.

Therefore, the best way to sum up is to focus on the fact that you actually need to do something to make this money. Whether you are getting up at 5 in the morning or working through the night, your income depends upon you putting a certain number of hours and amount of effort into it.

Why Isn’t This Perfect for Everyone?

Isn’t all type of income like this, though? The majority of people spend their entire working life being active and only earning based on what they have done that week or month.

If you didn’t know any better this might seem like the only type of lifestyle possible. Yet it can mean spending a third of your life at work. This can add up to tens of thousands of hours working during your whole life.

Just imagine for a second what else you could do with all of those hours? Travel the world? Spend more quality time with your family? Enjoy all of those hobbies and activities that you currently never have time for?

Then there is the issue of your retirement years. If your income stops abruptly, this can be a massive challenge. Studies show that two-thirds of Americans haven’t saved up enough for their golden years. 1 out of 5 don’t have any retirement savings at all.

Even before retirement, there can be major problems with this approach to earning money. What if you are made unemployed? Or what if you have to take time off due to an accident or sickness?

Bearing these points in mind, it is clear that non-passive income isn’t perfect for everyone. Is there anything that you can do about it, though?

What Else Can You Do?

There is another approach that is making more and more people open their eyes to a different way of living. This is completely the opposite of what we just looked at. If earlier you asked, ‘what is non-passive income?’ now is the time to ask, ‘what is passive income?’

Passive income is even easier to explain than the non-passive approach. It is the opposite of what we just looked at; it is when you earn money without putting in constant effort.

The idea is that you don’t need to get up at 5 in the morning or work all through the night. Neither do you have to spend a third of your life working just to pay the bills.

What Is the Financial Difference

What about your retirement? This will stop you from worrying so much about how you will make ends meet once you reach a certain age. In fact, it almost certainly means that you can start planning to retire a lot sooner than you had originally planned.

What Is the Financial Difference?

All of this sounds great for getting a better way of living but how much can you hope to earn? Is non-passive income the best approach to earning as much as you want? Or is it better to opt for a passive approach?

The amount you earn when working actively for your money tends to depend largely upon the number of hours that you put into it. It is clear that a part-time position is likely to give you a smaller income that a full-time equivalent, for example.

On the other hand, passive income doesn’t depend upon the time and effort that you pour into it. So what does it depend upon? It is more about how wisely you select your opportunities.

Should you buy property and live off the rental income? Or perhaps you can join an affiliate scheme that brings you commission on an ongoing basis for the rest of your life? There are plenty of ideas around, so that everyone can find something that perfectly suits them.

If you choose well you can earn handsomely with your passive income, gaining more than you could earn working hard every single day. It is important that you choose a method that meets your financial goals and is also sustainable in the long term.

How Can You Move from Non-passive to Passive Income?

We have now looked at matters such as what non-passive income is and what the financial benefit is of moving to a passive income source. This may lead you to wonder what steps you need to take if you want to start earning money even while you are asleep.

The best starting point is to find the right method that suits you.

C. James

C. James is the managing editor at Wealth Gang. He has a degree in finance and a passion for creating passive income streams and wealth management.