Passive Income Vs Active Income | How to Make Passive Income Online

There are two primary ways to generate earned
income and they are active income and passive income. Active income is any income that is generated
through the use of your own labor and usually requires you to trade a certain amount of
time for money at a job. Passive income is any income that is generated
through the use of systems that work for you even if you may not be doing much to maintain
them at the time. Active income is usually the first, and sometimes
the only, way that we think of making money. It is certainly the most common way to make
money, and many would argue that it is also the easiest way to make money. But which one is better? There are certainly good points made on each
side of this debate so let’s talk about it. As you can no doubt tell by the title, today,
we are going to be going over the passive income vs active income debate. I’m going to be illustrating what both forms
of income are, discussing the pros and cons of each, and hopefully, along the way, you
will get some interesting ideas on how to make money using one or both of these methods
for yourself. Hey everyone Daniel here and welcome to Next
Level Life a channel where you can learn about investing, debt, retirement, and many other
financial topics besides, because, let’s face it, the school’s aren’t going to teach
it for us. So if any of those topics sound interesting
to you or if you want to learn how to better handle your money and have more financial
freedom be sure to hit that subscribe button and the bell next to my name to be notified
every time I upload a video. And if you want to further support the growth
of this channel you can smash that like button if you haven’t already, share this video
with a friend, and leave a comment below letting me know what topics you’d like me to cover
in future videos. The main draw to passive income is that once
it is running you are able to generate some sort of cash flow every month whether you’re
showing up for work or relaxing on a beach somewhere. However, despite sounding like passive income
is far and away the superior form of income, there are actually some genuine advantages
that active income has that passive income, usually, doesn’t. The first advantage of active income is that
it can often be generated immediately. Unlike passive income, which usually takes
time or money (sometimes both) to get the system set up and running properly in order
to start generating a reliable and sustainable income stream, active income can be earned
pretty much right away. There are always people looking for help with
things either because they’re busy, or they don’t like doing it, or they are a business
owner trying to expand their business. Another advantage to active income is that
it usually is larger than what your passive income would be to start with. Again, in order to make a reliable and sustainable
passive income stream, you’re usually going to have to spend a good chunk of time creating
your product or service and researching how to make it profitable as well as learning
how to properly market it to the right audience. Depending on what type of product or service
you are looking at selling this could take anywhere from a month or two to a year or
more! Depending on the state of the economy, your
qualifications, and the type of active income it is your pursuing you could be earning a
couple thousand dollars a month or more within a week or two. A third advantage to active income that is
usually mentioned by many people is that it is easier to make than passive income. And while that may be true on a small scale,
for instance, it doesn’t take too much training or education to flip burgers at a local fast
food place, I would argue that it is only true up to a certain point. I would argue that going for higher-end jobs,
like a doctor, lawyer, accountant, or even some type of management position is actually
harder to achieve than a comparable level of passive income. This is largely because of the time, educational,
and testing requirements that professionals need to meet before landing the jobs that
they are going for, and the experience levels that are often required for higher-end management
positions. I believe that it is actually possible, and
depending on your work ethic and skill set maybe even easier, to earn a comparable amount
of income passively as, say, an accountant makes actively. But I’ll get into that in in a minute, first
let’s talk about the advantages of passive income that active income usually doesn’t
have. The first advantage to passive income is that,
once you properly set up your system and get it going, it often takes less working time
to generate the same level of income that you would make with an active income stream. One misconception that some people have when
it comes to passive income is that you don’t need to work for the money. That you can live what’s called the “laptop
lifestyle,” go sit on a beach somewhere and watch the money roll in and while that
dream has some truth to it, it is a bit misleading. As I said earlier, in order to earn a reliable
and sustainable income passively you’re going to have to do a good amount of research
and work up front to get the system going in the first place. A second advantage that passive income has
is that it is incredibly good at helping you escape the rat race. As a matter of fact, I’d argue that it is
almost always mandatory. The reality is that, if we live long enough,
eventually we will all reach a point where earning active income just isn’t feasible
anymore, but we’ll still need some money in order to survive. And if we can’t work and earn that money
actively than passive income, either through a side-hustle, business, or our investments,
is likely our best solution. A third advantage that passive income possesses
is that it, in comparison to active income, is incredibly scalable, and as a result, can
help you to achieve financial independence much faster than you could with just active
income. This is basically the entire idea behind the
book, “The Millionaire Fastlane.” The fact of the matter is that we all only
have 24 hours in a day to get everything we need to get done, done. So, if we’re getting paid by the hour, or
paid a certain amount of salary each year, there’s going to be a cap on how much money
we can make actively. Passive income, though, works a bit differently
in this regard and the effects that these differences can have on your financial future
(and present for that matter) are extraordinary. A great example to show how this works would
be starting your own YouTube channel and generating a passive income stream by letting ads run
on your videos. Let’s say that Jane earns $20 an hour at
her job. She’s 40 years old and wants to become financially
independent by the time she is 55, but she has no savings put away yet because she spent
her early years paying off her student loans, mortgage, and other debts. She currently spends $40,000 a year and wants
to maintain that standard of living in retirement and thus her goal for achieving financial
independence is $1,000,000 following the 4% rule. It also means that she’s currently saving
$1,600 a year or about $133 a month. Let’s also say that Jane’s been working
on a YouTube channel that teaches people how to train pets and, on average, every new video
Jane uploads to her YouTube channel earns her $1 per day. She currently has 20 videos uploaded on her
channel and is making $20 per day. Each new video takes her a full day’s work
to produce, but she hasn’t made any new videos in a while due to her workload. Jane has a few routes that she could take
in order to achieve financial independence. She could either pick up more hours at her
day job, cut her expenses and invest more, devote more time to her YouTube channel, or
some combination of the three. If she takes the first route and picks up
more hours at her job, she is certainly going to earn more money, but since there are only
so many hours in the day, she is going to be limited in how much she can earn from this
strategy. She’s also going to run the risk of running
herself into the ground from overwork. But it is still an option, so how could this
work out for her? Let’s say that Jane worked a solid 10 hours
a week of overtime for the 50 weeks a year that she works, kept her spending the same,
and invested that money she made from the extra hours. She would be making an extra $300 a week thanks
to her working overtime which translates to $15,000 a year for her to invest in addition
to the $1,600 a year she was already investing. Assuming an 8% average rate of return over
the long haul, Jane would hit her $1,000,000 goal in about 23 years when she is 63. That’s still technically an early retirement,
but it isn’t the early retirement that she was hoping for. But what if Jane also cut back her spending? Say, if, instead of spending $40,000 a year
she only spent $30,000 a year and invested the difference in addition to working the
overtime, maybe because she’s working so much more she doesn’t have the time to go
out and do as much so she spends less. Since she wants to maintain the $40,000 a
year standard of living when she does retire, her financial independence goal remains $1,000,000,
but instead of spending 23 years investing $16,600 a year in order to get there she now
achieves it in 18 years at the age of 58, by investing $26,600 a year. That’s better, but it is still not quite
as good as we want. What if, instead of working the overtime or
cutting the spending, Jane decided to devote more time to her YouTube channel? As I said, she hasn’t uploaded in a while
due to her workload, so she would likely have to cut her hours down a bit in order to produce
videos. Say if she went down to working 4 days a week
so that she would have enough time in her schedule to produce 1 video each week. This would mean that she’s now only making
$33,280 a year from her job and needs her YouTube channel to produce $6,720 a year,
or about $18.41 a day to cover her expenses. But one new video each week, earning an average
of $1 per day, is an additional $52 per day in income over the course of a year. $52 per day, 365 days a year, is nearly $19,000
a year in additional income. Jane was already making $20 per day from her
older videos, so after one’s years’ worth of uploads, Jane would be pulling in $72 per
day or $26,280 a year from her side hustle. After two years she’d be making $124 per
day or $45,260 a year, which is actually more than she’s making working 40 hours a week
at her day job and it’s also enough for her to fully cover her expenses. So if this YouTube thing holds up and she
could maintain her $40,000 a year lifestyle, she’d actually be financially independent
right then and there, but she doesn’t want to retire and leave her financial fate up
to just her YouTube channel so she’ll keep investing until she hits that $1,000,000 net
worth goal. Assuming Jane kept uploading videos every
week and invested all of the money she earned from YouTube after covering expenses, Jane
would be financially independent in less than 10 years at the age of 50! That’s the power of passive income and scalability. But that’ll do it for me today once again
if you enjoyed this video be sure to smash that like button if you haven’t already,
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27 thoughts on “Passive Income Vs Active Income | How to Make Passive Income Online

  1. You really should have more subscribers. Your videos are some of the best I've seen about finance.
    Would you say retail arbitrage be considered active or passive and why?

  2. also, the passive income would live on after they retire, which in turn would be even more financial stability. Thank you, great video as always!

  3. Passive income is something we all should strive for! I would say Youtube is one of the most fun ways to earn passive income

  4. Job loss, getting too old to work, etc,…..your active income will fail at some point. But so will your passive income (non-paying tenants, investments take a market dip, etc,…). Good to have both.

  5. Great video. It makes me a little sad though that I haven't started any passive income system yet. I've seriously got to carve out some time to get something going.

  6. How would home equity factor into your calculations for preparing for FI? I've seen people say to include it and others say don't… But wouldn't the fact you either don't have to pay rent or if you plan to rent out the property and rent a cheaper one for yourself factor in heavily to your expenses after FI?

  7. I'm going to start a YT channel in the next month. Not only hoping to make money, but I think it will be a fun venture. Thanks for the Vid!!

  8. Off topic but what is your opinion on debt relief programs I'm going though a situation right now and have 2 more days before I can cancel the program so I'm debating on whether or not I should take care of my debt on my own or use the debt relief program. Just got put on child support w/ 50/50 custody so its difficult for me to get the overtime I used to get. I would be getting into a 52 month program $547 instead of $900 doing it on my own which would help me financially but I dont know the impact it will have on my credit score since I have to close multiple credit cards while on the program. Score was at 750 but has dropped to 690 so wanted to know pros and cons of using debt relief as opposed to me paying it off on my own. Need help asap since I have 2 more days to cancel the program

  9. How many views do you need to earn 1 USD per day from a YT video? I have always read that it is hardly feasible for most people.

  10. This is glorious, I've been looking for "develop passive income" for a while now, and I think this has helped. Have you ever come across – Qonmily Passive Formality – (search on google ) ? Ive heard some amazing things about it and my mate got amazing success with it.

  11. This is just superb, been searching for "how to make a good passive income" for a while now, and I think this has helped. Have you ever come across – Qonmily Passive Formality – (should be on google have a look ) ? Ive heard some interesting things about it and my mate got great success with it.

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