What Is Passive Income
Passive income has been loosely defined as money that you earn with the least or zero amount of effort. People often associate passive income with dividends, interest as well as lottery winnings and capital gains from real estate. Passive income or residual income can also be derived from a business where you do not have substantial investment in terms of labor. It’s easy to see why people like the idea of passive income. You are able to do the work once and get that passive income forever.
Active Income vs Passive Income
The difference between active and passive income – Your business associate who does most of the work will consider the income that they earn from the partnership as active income. This is the polar opposite of passive income because the former is money earned from rendering a service. Your salary is considered as an active income, so are tips and commissions. Let us assume that you have a 50% interest in a business venture, you have invested more than 100 working hours to make the enterprise prosper. In this scenario, you consider this as an active income whereas a passive income is earnings derived from any form of business or partnership in which a person is not actively involved. A passive income can also be referred to as residual income.
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