Updated on Apr 2, 2025
4 minThe difference between active and passive income is simple.
Unless you are particularly wealthy, you will need to earn active income throughout your life. But wherever possible, you should try to create and increase passive income.
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Active income refers to money you make through your direct efforts. For example, the wages you might earn from a job, or as a cash in hand payment for casual work. Active income requires continuous time investment to keep earning; active income stops when work stops.
Unless you are lucky enough to have been born wealthy, you will probably need to earn active income throughout your entire life, or at least until you retire.
Passive income is money you earn with little to no ongoing effort, such as rent from a property you lease, or the returns on stock investments. This kind of income almost always requires a big initial investment, which pays for itself over time.
Unlike active income, passive income self-generates, and so it allows you to continue earning even when you have completely stopped working. Passive income is therefore ideal, but most people cannot afford to make the initial investment required to begin.
The classic example of active income. You work set hours at a company and receive a steady paycheck for your time. Although you need to grind the 9-5, this is a reliable form of income; you know exactly when you'll get paid and how much you can expect.
Besides traditional jobs, side hustles that require regular work are also forms of active income. You might have a food truck you operate on the weekends, or — if you're a creature of comfort like me — you might work online doing paid market research in your spare time.
Platforms like Freecash are perfect for this kind of side hustle. Essentially, you get paid for completing simple online tasks such as filling out surveys and testing new apps.
Most users do this in the spare time as a side hustle, but some users do Freecash full-time to make up to $5000 a month.
Whether you do a side hustle part or full-time, it still counts as active income if it requires regular work.
Another example of active income, besides traditional jobs and online side hustles, are cash in hand opportunities you find for casual work. For instance, if you babysit a neighbor's child or walk their dog for money, this also counts as active income.
If you own real estate, you can lease it out and collect rent. This is the common form of passive income, and it's becoming even more common now that you can rent individual rooms via platforms like Airbnb.
Renting a property requires a massive initial investment and some upfront effort in terms of maintenance and finding trustworthy tenants. But, it provides a constant stream of income, and should reliably continue generating income for the rest of your life.
When you buy shares, you are effectively buying part ownership of a company. And when that company makes a profit, part of that profit is paid out as dividends to every shareholder.
These dividend payments represent a form of passive income, as they require zero work from you besides buying the shares. Although buying shares is usually a great way to invest your money, you run the risk of earning nothing from your shares if you invest in a company that fails to make a profit.
A final reminder for you...
| Active income | Passive income | |
|---|---|---|
| Definition | Earnings from work or business activities in which you actively participate. | Income is generated with minimal ongoing effort, often from investments or assets. |
| Examples | Salaries, wages, commissions, tips, freelance income. | Rental property income, dividends, interest, royalties, and income from business investments not requiring direct involvement. |
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