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What’s the Difference Between Active and Passive Income?

What is Active Income?

Active income is money earned in exchange for your time and energy. The best example of an active income source is your typical 8 AM to 5 PM job, which is normally paid via salary, tips, and/or commission on an established pay frequency. Active income from a job can be earned from a part- or full-time position. Active vs Passive Investing.

Another source of active income is freelance and consulting work as an independent contractor. Some examples include working as an independent graphic designer, photographer, software developer, and marketing specialist.

What is Passive Income?

Passive income is income generated without the commitment of an active job. Most commonly, passive income is earned through dividend stocks, high-yield savings accounts, peer-to-peer lending, or rental properties. Another passive income source is content creation, which allows individuals to receive income through payments received for the use of their intellectual property.

The Difference

In most cases, active income is earned before passive income can be obtained as individuals use their active income to create passive income.

The clear difference between active income and passive income is the daily and active commitment to creating the flow of income. When generating active income, your time is dedicated to a job or task which likely takes away from other opportunities. Passive income is appealing because of your ability to create multiple streams—without exhausting all your time and energy to generate the income.

The best way to generate active and passive income is to be strategic and intentional in how you manage your cash flow, as well as sharpen your skills to create additional opportunities that allow you to use those skills to generate income. You can create the lifestyle you desire by bettering your craft in ways that will set you apart. After sharpening your skills, actively pursue opportunities that will provide the income you desire. As you actively generate income, determine the passive income avenues that will help you reach your cash flow goals. Individuals who desire to create generational wealth will always have multiple streams of income.


Rohde, Jeff. 2022, Roofstock,,wages%2C%20salaries%2C%20and%20commissions..

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