There are mainly two types of income, active and passive income. According to Simple Dollar, active income is earned through your active effort - in other words, the money you make from your job. Your paycheck is active income.
Income from any side businesses you have is active income. Incidental earnings, like finding money on the street, are active income, too, since you actually had to contribute effort to receive it at all.
Meanwhile, passive income is income that you receive without continual active effort. Income from a rental property is passive income. Book royalties are passive income. A website you set up once, put ads on, and walked away from is passive income.
Active income depends on one’s physical regular efforts and can be affected severely by absence of individual while passive incomes keep rolling in even when the owner of the income source is present or absent.
Passive income is that which as a result of your past efforts or investment, a stream of income is forthcoming with or without you absence of the owner.
Such income can come from a well-structured company, or real estate. As we can see if you want to be rich, active income may not be the best type although it may work for some people say, European footballers who are able to earn handsomely though their playing life but still when they stop actively playing their stream of income dries.
Real wealthy people are the masters of creating passive income. For example a simple motorcycle rider has to wake up every morning to make money but if he does not he can not make any money on that particular day.
Besides, his income is limited to him alone. The maximum he can he can earn is if he was hired to ride for someone for 24 hours. If he wanted to earn some passive income, he can save over a period of time and buy tow other motorcycles such that at the end of every week, he receives a fixed income for his investment. Even if one of his rides falls sick once a week, he is still obliged to pay him his weekly fee.
A better example is say a water manufacturing factory. One employee can make a maximum of 20 bottles of water per day and earn himself ten thousand francs.
Sicne the factory owner knows that he needs to supply one thousand bottles of water every day which he alone cannot make, he employees 50 people to make 20 bottles a day and thus makes his one thousand bottles.
He pays four thousand francs to each employee per day, invests the three thousand francs into machinery and management and takes home the remaining three thousand per person per day as his profit.
As much as the employee would like, he cannot miss a day at work because he must work to earn and is replaceable. But the factory owner can afford to visit the factory for one hour in a day to make sure things are running smoothly.
The truth is the employee works for only say, 8 hour a day while the factory owner actually works for 400 hours in a day (8 hours per day times 50 employees).
The factory owner compounds his time and his money. Think about it. As a business man can you create a product that people can buy again and again without you having to personally push it in their faces all the time?
If you invest your money in the upcoming issue of BRALIRWA shares, every year when the company makes a profit, you will earn dividends without any effort. This is because your money is working for your.