What is an Income?Income is a monetary advantagegained by an individual or a business institution in exchange for the goods orservices they provided or for the capital invested. Income is generally used bythe acquirer for funding the everyday expenses. Most of the income aresubjected to taxation. (Income not subjected to taxation.) Income is generally classifiedinto two categories:1. ActiveIncome2. PassiveIncome What is an Active Income?Active income is an income whereyou are paid for the work you do.
This can include commissions, tips, salaries,wages or the monetary payment you earned from a business where you have anactive participation. For example, Sam is professionally a doctor, he gets paidonly if he actively provides his service to the patients i.e. treat and curethem from their conditions.
The day he takes off from his jobs or goes out fora vacation with his family he doesn’t earns a single penny.Thus, the income generated fromthe active involvement of your physical or mental aspects includes in activeincome. Money one generates from completions of specified task/projects or byworking in 9 to 5 jobs is an active income.What is passive Income?The income generated from thesources which requires minimal or no efforts from the recipient is calledpassive income. It is also where you get paid over & over again for thework you that you did only ‘once’.The decisive factor to note hereis, passive income sources requires an considerable amount of upfront work ormonetary investment and proper nurturing in the initial phases of its development.
For example, James is a retiring federal employee, he invested his retirementfunds in the stocks of XYZ Private Limited. This industry provides highquarterly dividend to all its investors. Thus, James for rest of his life getspaid in the form of dividend without any regular effort put into it.The alternative example forpassive income is ‘Royalty’.
The amount paid by the publisher to the creator ofart in the form of money for each of his work being sold is called royalty. J.KRowling, the author of Harry Potter series, gets paid for her each book beingsold worldwide for the rest of her life.