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Active Income vs Passive Income: Is Living on Interest Attainable?

Active Income vs Passive Income: Is Living on Interest Attainable?

Active Income vs Passive Income

Let us continue discussing the basics of personal finance.
So far, we have discussed The Rule of 72 and The Magic of Compounding Interest.

Now, let’s talk about these two kinds of incomes.
How do we define active income vs passive income?

Active income refers to your primary income from working. It is the direct result of spending time, talent and energy either in your employment or business. Active income could be your salaries, professional fees, profits from business, “sidelines” or in Pinoy lingo – “raket.”

Passive income refers to money you earned without having to work for it. You do not need to directly participate in any activity to earn this passive income. It could be your dividends from stocks, affiliate earnings for bloggers, rental fees you get from your tenants, bank interests, etc.

Can I really be financially free by relying on passive income alone?

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The answer is yes! If your passive incomes are sufficient to fund your years all the way to retirement, then you can be financially free. Being financially free here is defined as having the sustainable resources if you stop working today.

Living On Interest or LOI – What is this concept?

Suppose you assume that you need Php30,000 every month by the time you retire. You need Php360,000 every year. Then let’s say you have an investment which earns you 10% per year. This means you need Php3,600,000 or Php3.6M which gives you Php360,000.

This is how the living on interest is applied in real life. You will only spend the interest or Php360,000 per year and do not touch the fund of Php3.6M.

Do I really have to get out of the rat race?

If you have played Cashflow 101, (I played the game twice in the past, you can read about my story here), all players are rats in the game. The players will strive to get out of the rat race by having more than the required monthly income which you can earn through passive income sources such as stock dividends and rent. Everybody dreams of being financially free. But will you really be stopping from work? Depends. You can actually do your passion. Work can be our passion. It doesn’t have to be a terrorizing act of rat race. It can be a pursuit of excellence (read: Key Takeaways from Kerygma Conference Business Stream 2013), an avenue to inspire others and “be more.” Being more doesn’t have to carry a price tag. Being more can be about self-satisfaction and it all depends on how you view your personal success.

How about for sidelines which I also spend time for but not full-time, is’t still passive income?

There are various, legitimate ways to earn passive income. You can even classify incomes as semi-passive, or semi-autopilot, depends on the level of participation. For example, if I blog today and my blog has served you well and you clicked automatic ads generated by Google, I can earn from Google but it’s not entirely passive income since I had to blog, think about what I’ll write, spend for internet costs and obviously allot time.

Are there ways to earn passive income?

As mentioned, you can earn via rental fees from your properties, affiliate marketing, dividends through stocks and insurances, etc. There are unlimited ways today to earn passive income, thanks to the internet. You can check out my posts on blogging 101 to get you started if you want to blog and earn money.

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That ends our mini learning course on how to invest in Philippine stock market!

Every Filipino deserves to be financially free.

#FilipinoFinancialFreedom

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 Every Filipino deserves to be financially free.

#FilipinoFinancialFreedom

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