Simple Meaning of Passive Income and Active Income
We Pinoys are very industrious that sometimes by being hardworking individuals we tend to focus on working hard and not on working smart. That’s why I take time to write an article on the simple meaning of active income and passive income. And hoping that after reading this, you would have a better idea on how to become smart hardworking person. J
There are two kinds of income, the Active Income and the Passive Income. So that a person can experience financial freedom, he must base his expenditures on the kind of Income he have.
Active Income
Active Income is the income generated from your active work. It includes about using your own resources of time, talent and skills. (i.e., the current job or employment that you have is considered source of your active income). It is common known as the income from your own sweat and blood (“dugo’t pawis ang puhunan”).
Bearing this in mind, you must be aware that this type of income must only be used for your daily basic NEEDS (food, clothing, shelter, transportation, etc.) and in growing your savings. It must not be used to buy luxuries and WANTS.
Reminder: Our body is deteriorating and we cannot work actively all our lives.
Passive Income
Passive Income is the income generated from an investment using your money or property even without active participation or direct management of it. (Note: if ever you want to buy luxuries or your WANTS, it is best to use the money generated from Passive Income.) But better still if you will use the Passive Income to grow your investment.
For instance, if you are earning Php240,000 annually and your saving rate is 10% only, you will be able to save a total of Php24,000 in a year. You will accumulate Php3.9Million from you passive income by just saving 10 percent of your annual income, investing it to earn 10 percent per year and leaving your earnings to compound annually.
Compare this to your annual active income savings of just about Php700,000 on the thirtieth year. And this active income which you earn perhaps is more than 8 hours of work a day everyday in thirty years.
REMEMBER: Passive Income is the key to have financial freedom. Set aside at least 20 percent of your total income every month as your starting and continuing capital to build your desired net worth over time. If you put these savings in the right financial instruments and allow the earnings or interest to compound, your total passive income will surely guarantee your financial security when your retirement period comes.
By: Bener Alcaraz
Pinoy Real Estate Coach
Email me at: affiliateprogrambener@gmail.com
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