Passive Income: Why is it Better for You?

One of the keys to building financial independence and increasing savings is understanding the importance of passive income (ex. from investments) – money that is working for you, instead of you working for it.

Active income, like a salary, involves, most importantly, your own daily effort and comes along with a lot of costs: taxes, travel, pay cuts, etc. Passive income, on the other hand, creates itself while you, theoretically, “sit back & relax.” It has no associated costs and involves much less regular effort.

Passive income also has another interesting advantage over active income: it usually affords its beneficiary geographical independence. With passive income, in the form of an investment, one is not tied to any particular place. Compare that to your commitment to the physical office where you work and everything that is entailed in that commitment. With passive income, your money could be creating more money whether you are at home in bed, at your day job, or on vacation.

Passive income can come in the form of an investment in stocks, mutual funds, bonds, or a property or business. These investments are not always simple. They require research, knowledge, and a significant amount of liquid money. That said, they far outweigh the benefits of a base salary.

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