Active Income

What is active income?

While there are two types of income, both active and passive income, most employees only receive an active income which is money or commission received from completing a job either full-time, part-time or could be seen as tips received.

An active income can be in the form of a set salary, which is received monthly, hourly wages, or bi-weekly wages. Some employees who obtain hourly wages as an active income can also generate a larger sum by working overtime or completing additional tasks.

In some cases, employees may receive a commission as an active income, this is usually pertained as a percentage of a total lump sum of money. The percentile thereof, either 1%, 3%, 5%, or anything in between is then paid to the employee as an active income. Working on a commission basis does not however secure a set salary or wage amount and can be different each time.

What is an active income not?

While it’s possible to receive both an active and passive income, some people tend to get confused about the difference.

Any additional money or earnings received from an income-producing asset such as a rental income, investments, trading, or business investment is referred to as a passive income.

A passive income or passive capital usually exists because an employee invested a portion of their active income into an income-producing asset.

For example, an employee saves up a portion or percentage of their salary to purchase a house which they later rent out to receive a passive income. This investment generates wealth over time, while the investor, in this case, the employee, is not actively involved in the process of generating the passive income.

Active vs. Passive income

Some basics to remember:

  • Active income is received each week, bi-weekly or monthly as is referred to as a salary or wages.
  • Passive income is income received from an income-producing asset, i.e. investments or a rental property.
  • Active income can also be commission or tips received for working overtime.
  • Passive income requires capital investment from a person and does not actively involve the investor.

Published:

05/26/2022

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