Active Income vs. Passive Income: Are You Working For The Wrong Income?
How would you like to learn about active income vs passive income – the differences, which one is better, which one you should focus on and acquire more of?
Active income is when you get paid for your time. You’re exchanging your time for money, so that could be a job, coaching, consulting, public speaking or a service that you might provide.
Passive income is when you're earning automated income without having to actively do anything to earn that income.
You might have set something up in advance, or you're selling a product or service, or automating your business with technology or employees.
However, there are many different forms of passive income, which can come from business, investments or even real estate.
In this video blog, I'll be talking about the different types of active income and passive income.
Watch the video below:
Hey, everyone, this is Stefan from projectlifemastery.com. In this video, I’m going to talk to you about active income versus passive income. What are the differences, which one is better and which one should you focus on acquiring more of. You're probably already familiar with active and passive income, you've probably already made one form of income, whether it's active or passive or both.
What is active income?
Active income is essentially when you get paid for your time. You're exchanging your time for money. That could be at your job, you spend an hour at your job, you get paid for that hour. It could be coaching, consulting or public speaking, a service that you might provide. Maybe in your business you are a coach or a consultant, you get paid to speak at different events, you're going to get paid for that.
It could be based on a service that you might provide. Maybe you'll have a carpet cleaning agency and you get work and jobs that way, and for every house that you clean the carpet of you get paid a direct fee for that. It could also be if you're a freelancer, maybe as an online freelancer. A graphics designer, a web designer, you get paid for your creation.
Essentially you're exchanging your time for money. It's active because, in order to make the money, it requires your work, your time and your energy. What happens is when you stop working, you stop providing that service or putting in the hours or time, then that income basically stops. That's the #1 form of income that most people make. Most people have a job, most people have a service, a business that could be a service as well, because you can definitely make active income on your job or in a business.
I have forms of active income that I make. In my business, I do coaching, consulting and some public speaking as well, so basically I'm getting paid for my time.
Passive income = freedom for yourself
The other form of income that's more superior and more significant than active income that I believe everybody needs to strive for because this type of income is going to create freedom for yourself, it's going to allow you to leverage yourself and make more money, and that is passive income. You probably already know about passive income, maybe you've heard of it.
I first heard about it from the book The 4-Hour Workweek by Tim Ferriss. Just the whole idea and the concept that you can quit your job, escape the nine to five, travel the world, make money while you're sleeping, that was really attractive to me. When I discovered that I decided, “You know what, I've gotta find a way to make this happen, I need to find a way to make passive income”, because I was tired of being a slave.
My very first business that I had when I was 21 years old was a coaching business. It was a dating coaching business in Vancouver, Canada called, “Lifestyle Transformations”. I started it with two different business partners and we had a few people working with us.
I struggled with shyness and confidence in meeting people and meeting girls, so I wanted to help people. I wanted to coach and I was very good at it. It made a lot of changes in my life. Our whole business model was an active based business because what we had to do was we had to put together seminars, we did three seminars every two weeks, and then we would coach people and put on events and everything. In one month we'd make maybe some pretty decent money, maybe a couple of thousand bucks. We got paid.
The problem with it was it was based on active income so when we stopped working, when we stopped coaching and putting on events, the income stopped. With active income you can make good money, you can make really good money through active income. There's a lot of doctors and lawyers that make a lot of money, active income.
There are business people, they can make couple hundred thousand dollars, active income. The problem with it is that you have to work a lot, you have to hustle a lot. Oftentimes there's a lot of stress, you don't have much freedom involved with it as well. Once you start earning a certain amount of money you always need to sustain it.
For example, you could work your ass off, 80 hours a week and you can make $100,000 in your business hustling and grinding, but what happens is next month or next year you want to make that same amount, you still have to spend 80 hours a month. It's not very sustainable long term because it always requires that amount of time.
I'll share the story
When I started making the passive income I made that transition….I'll share the story. When I did, I remember I met someone who was very successful and he was making way more money than I was. I was only making like $5,000 a month, passive income at the time.
He was making hundreds of thousands of dollars, and he said, “You know what Stefan, I would trade your position, trade positions with you in a heartbeat, because even though I'm making way more money that you are, you're making passive income, you have a better lifestyle. You have more freedom than I have.”
He actually saw more value in less money having it passive than the more money that he had that was active income because he was always stressed, he didn't have much time to spend with his family, he didn't get to travel much. What good is your quality of life having all of this money if you don really get to enjoy it?
For me, in that business that I had, the dating coaching business, I learned about passive income. I learned that one of the best ways to build passive income, and there are many ways I'll share with you, but one of the best ways is through an online business, the Internet is allowing us to automate so many things.
In person, at seminars, you've got to go out there, you've got to sell people, one-on-one or in groups. The Internet, I can publish a YouTube video, I can just put up the work one time, have a video published online, its up there for years, forever, that's continuously attracting people and I don't physically have to be there to sell someone, to talk to them, to influence them in some way.
Right now, as you're watching this video, there are thousands of other people watching the hundreds of other videos that they have right now on my YouTube channel. There are thousand of other people that are are going to my blog right now consuming content from me, and I don't physically have to be there. I'm here in Puerto Rico right now in San Juan recording a video or whatever, and I'm reaching thousands of people because of leverage.
That's how you have to think if you want to be successful. Not to say you can't be successful with active income, you can, but in order to scale up and make significant money, I'm talking about millions of dollars and have, more importantly, the freedom, the lifestyle you want, then you need passive income.
What is passive income?
Passive income is basically some system of automation that you create, whether it's a product or even a service you can automate, or even real estate. There are many different models of passive income, but it doesn't require your time, your active time, your energy to be there to make money from it. For example, creating products.
A product is great way to create passive income and selling it online because if I have a website and I sell the product through that website, I don't have to be there to sell the product, the website is available 24 hours a day, unlike maybe a local that's only open from morning until night, or they're closed on weekends or whatever it is. My website is available 24 hours a day, it's reaching people all over the world.
Unlike a business on the street, my only reach is the people in the neighborhood, I'm able to reach the entire world with my products and services because of the Internet. My website is selling for me, and people are coming to my website and they're buying. I don't have to do the transaction, I don't have to deliver the product, I don't have to take their money and swipe their credit cards, in person.
The internet technology, Paypal or whatever different technology there is that is available, is doing everything for me. As a result of that, I'm able to make money on autopilot without having to exchange my time or energy to do that.
With passive income, it requires your time, energy and money and all that sort of stuff upfront to create that. You're investing your time at the beginning, but the benefit is that you don't have to spend the time to sustain and make the money down the road. For example, right now for me, I'm creating this YouTube video. I'm going to publish this on YouTube. This YouTube video is going to be up there forever. It's probably going to have a couple of thousand of people that are going to watch it.
I'm going to reach thousands of people without having to individually interact with you, and this video is going to continue being up there, reaching people while I sleep, while I'm traveling for years to come just because of the 20 minutes of whatever it's going to take me to record this video. One time is going to have this leverage impact, the scale effect, that you would never be able to have through active income.
Different ways of passive income
Passive income, there's many different ways. They're selling products online, even services. You set it up one time, continuous making you money on autopilot while your sleeping, 24 hours a day, continues making you money. It could also even be something like real estate.
With real estate you can buy an investment property and you can rent it out, and then the rent that you collect from that investment property will cover the expenses, and anything in excess, that's passive income because you didn't have to spend any time or money to earn that money, it's all automatic, all automated.
Even investing in different stocks that pay a dividend. There are certain stocks or investments that you can make, they'll pay you a monthly dividend or a quarterly dividend, or a yearly dividend, and it doesn't require your time or energy or effort to manage it. Consistently you are earning a certain amount of money, month after month, day after day, year after year on autopilot.
Ultimately what passive income is, is a way for you to leverage yourself and scale up and create freedom for yourself. The model that I had, I'm doing coaching consulting and doing events, we would make money in certain months, but again, it wasn't sustainable because we had to always hustle and grind every month to make the same amount of money.
Transition to creating products, a product you have to create one time. An eBook you create one time. A digital product you create one time, you put it up there, and it's basically now making you money for as long as you want, forever potentially.
Passive income guys, that's really the ultimate way, the best way of making money. There are many different opportunities for passive income. Even if you have a business, let's take the carpet cleaning company or whatever, you could automate that. You can make that into a passive income by hiring people to run the business for you, having employees that handle everything for you, and now you're making money without having to physically do the work.
One fantastic story from someone
I remember hearing one fantastic story from someone, I think it might have been Tony Robbins or someone like that. Tony Robbins he went skiing with this guy, very successful guy, one of the richest man in Canada, and they're going up this chair lift. He says to Tony, he said, “You know what, here we are we're going up this chair lift, and right at the top of the mountain, and in the last 20 minutes that going up this chair lift, I've made an extra $100,000 in the last 20 minutes while I'm here skiing.” Tony Robbins was like, “Wow, that's amazing. That's really awesome. I mean you're making money while you're skiing? That's amazing.”
He said to Tony, “But you know what, you are losing money.” Right here we're skiing but you're losing money because your only stream of income is active income, so when you're not working you're not making any money, you're actually losing money. He said, “You know what, you got to find a way to make passive income. You need to find a way to leverage yourself, scale yourself.”
That was actually what transitioned Tony Robbins from doing seminars, he still does them because he loves them, it's very fulfilling. Nothing wrong with having some active income in your portfolio, but to selling products, because products are what gives you the ability to reach more people, make money while you're sleeping. That's the ultimate guys, passive income.
You need to find a way to make passive income
Active income is good, I love active income because I can make a lot of money in a short period of time, I can make money and I do things that I enjoy, like coaching and working with people, and speaking. That's fine if you enjoy it, but you want to think about how you can have your money work for you.
The money that you're making, take that money and invest it in a business that can make passive income. Invest it in real estate stocks, things that can make money for you so that when you stop working you're still making money.
For me, when I retire one day which I probably never will because I love what I do so much, but one day when I retire, I don't need a pension or anything like that because that's peanuts to what my business will continue paying me.
The content, the products, the investments that I have, they'll continue paying me money forever. Forever, beyond my time on this planet. That's working smarter, developing passive income streams. For me, if I want to be lazy for the next month and travel the world, do nothing.
If something happened to me I'd go to the hospital or something like that, my business is still running, my business is still making money, I still have passive income coming in. I can take a year off in my business and I'm still going to make at least six figures of my seven figures from my business. That's the power of passive income, is that it gives you the ability to have freedom. That's the ultimate form of income, and there are many ways.
I specialized specifically on building an online business, and if you haven't yet been to my free training on the 7 ways that I've become an Internet millionaire, the seven business models that I teach, then make sure that you take advantage of that.
You can access that at projectlifemastery.com/freecourse, I have a link below in the description. That's my specialty, I love Internet businesses because the Internet is changing the world. A lot easier at least for everybody, and it's providing opportunities that never existed before.
My message in this video is to find a way to make passive income. Do active, that's where you're at right now, but you want to get to a point where 95% of your income is passive income, and only 5% is active income. Most people right now, it's 100% active, or if not, 95% active income, 5% passive, you've got to reverse that.
I specialize in helping people with that, again, check out my free training, subscribe here to the YouTube channel. I would love to hear from you. Make sure to leave a comment below. Let me know how you're doing or where you're at.
Are you making active income, passive income? What's the ratio? What are you going to do to start making passive income? I've got different training programs that can help you, that's why I created them, K Money Mastery is one, the link's below in the description. What are you going to do?
Maybe finding a new business opportunity or investing your money in different ways. Get started on it now. Even though you don't make initial money from the return on the time you're spending to build your business, the passive income you generate after that will support you for years to come. That's it for this video, thanks for watching. See you in the next video.
Please leave a comment below or let me know any questions you have. I'd love to hear what you think!
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