Boost Your Wealth: Active, Passive, or Portfolio Income
In this article, we will talk about the types of income sources.
We will discuss regarding what are the different types of income sources, their advantages and disadvantages, and also their examples.
Income sources are of 3 types, namely, active income, passive income, and portfolio income.
Most of us have already heard about active income and passive income, and some are familiar with portfolio income as well.
But many people are not aware of the differences that exist between them and their actual definitions.
That being said, let us find out more regarding these 3 types of income sources in the following paragraphs.
Table of Contents
Active income
One can define active income as the income received by you as an outcome of your services or work in which you take part actively.
Some active income examples are mentioned below:
• Freelancing work
• Your present job
• Working in a restaurant, a grocery outlet, and so on
• Coaching, tutoring, and consulting
When you open the grocery shop or restaurant, you begin to receive cash, and when you don’t open the store like when you go outside, your income is going to stop.
The same is applicable to a doctor. When the physician is going to open his clinic, he will start getting his income and it will stop when his clinic is closed.
Passive income
This is the sort of income that is earned by you with less effort or no effort at all.
You will always get passive income irrespective of whether you are sleeping, are sick, or have gone on vacation.
Some passive income examples are mentioned below:
• Creating a channel on YouTube
• Commencing a blog
• Affiliate marketing
• Selling photographs, online courses, and so forth
• Rental charges from house property
Here, you have to make an effort for the first time while starting the job and then you need not make much effort or no effort at all to earn money.
For example, if you create a blog on some particular niche, it is going to stay there even after 10 years providing you with passive income.
The same is applicable when creating a YouTube channel.
Portfolio income
This type of income is received by you from the ownership of mutual funds, stocks, bonds, and SIP in the form of dividends, capital gains, and interests. Some examples of this type of income are as follows:
• Investments in bonds, stocks, SIP, and mutual funds.
• Interest from banks, recurring deposits, fixed deposits, or other sources.
Now that we know about these types of income sources, we will talk about their advantages and drawbacks.
Pros of active income
1. Active income comes with low risks.
2. It is feasible to easily plan your monthly budget.
Cons of active income
1. It will be possible to generate income so long as you work.
2. Income is fixed.
3. Limited earning potential.
Pros of passive income
1. You need to work only once and you can earn money with no effort or very less effort.
2. The sky is the limit when it comes to generating income.
Cons of passive income
1. You need to invest lots of time to create a passive income source.
Pros of portfolio income
1. It is feasible to generate massive profits on investments.
Cons of portfolio income
1. You need to take higher risks to get higher returns.
2. Lack of fundamental knowledge of investing.
Which category of income should you focus on?
It is a fact that active income will provide you with more security while passive income will offer you more freedom.
However, irrespective of your choices, one of them might be more realistic than the other.
For example, you might like the idea of leaving your current job and opt for passive income.
It will help you to enjoy your life in a better way by spending more time with your family.
But it might be that you haven’t saved anything during the last 5 years of your service.
You might not have the required funds, skills, or time to sell a profitable asset after creating it.
Although it might appear to you that your active job is more practical, there is no need for you to stick to it in the future.
It can motivate you to invest more time and develop some skills in making your dreams come true.
Thus, it is a fact that whether you want to go for passive or active income will depend on your priorities more than anything else.
