Ever since, I came across the terminology called, 'Passive Income', I have fallen in love with that. I am optimistic that this blog will make you also fall in line with me and fall in love with 'Passive Income'!! Before we proceed further, let us try and understand the meanings of ‘active income’ and ‘passive income.’ Active income is the income which you get as long as you work and which stops when you cease to work.
Passive income comes to you whether you work or stop working. Let us understand this through the following examples:
- Salaries of employees, fees earned by a doctor or any professional, are active incomes.
- Income (interest or dividend) from investments, rental income from properties, royalty income from your books are passive incomes.
It is very important that one should not think that earning passive income is for lazy people. In fact, earning passive income is the smartest approach in one’s life. So, the prefix ‘passive’ is better than ‘active’ in the context of Personal Finance. A simple paradigm shift will help you.
Let me mention a few reasons for my liking ‘passive income’:
- Passive income is a true definition of ‘wealth’. As per a few experts, when your passive income is equal to or greater than your expenses, you are a wealthy person. Let us say, your annual expenses are Rs. 600,000 and your income from investments is Rs. 650,000 per annum, you are a wealthy person. You may also cal this as, ‘Financial Freedom.’
- Through passive income, you are demonstrating that money works for you rather than you are working for money.
- Passive is the best insurance for any contingencies such as health challenges.
- It is a sound way for retiring early. Of course, retiring does not mean one will stop working. Retiring from active work can give the person the option to pursue any of his or her passions.
- In fact, once you have passive income, you will earn more because your confidence will give you higher energy.
- Another secret, you will become wealthier with passive income, since you will not be desperate. As my mentor beautifully puts it, "When you are desperate, things may not be denied but delayed".
- Passive income gives a true comfort to your family members. They will enjoy the security of passive income.
We can add more to the above list. Of course, one can and should ask the question, "How to create passive income?" We will soon discuss that. One simplest thing one can do is to start saving and investing early and utilise the wonderful concept of the Power of compounding. So you will appreciate that Passive income gives you financial freedom and is very important for your Personal Finance.
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