Let’s say you buy and sell homes as an investor, or you’re a silent partner in a business. Understandable, but not entirely accurate. If you earn income passively, you may think that you don’t need disability income insurance or that you won’t qualify because you don’t have an employer. No matter how you earn your income, it has to be protected from loss due to illness and injury.
#Passive income vs active income full#
You have to find and buy your own insurance, fund your own retirement, and pay the full Social Security due on your earnings. They’re frequently alone in front of a screen watching news and markets so they can stay on course. Many people that earn income passively have limited interaction with others. But stock markets crash, and real estate markets collapse. This may be debatable since many people believe they’re in total control as passive income earners. There is no ceiling on how many investment properties you can own or how much money you can earn in the stock market. You’re not paid a salary or paid by the hour you have unlimited earning potential. You don’t have to report to anyone else, and you’re not dependent on anyone for a raise in pay. This applies to qualified dividends as well. The tax rate for long-term capital gains tops out at 20 percent, depending upon how long you hold the asset.
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The list of pros and cons for passive income is shorter than it is for active income, but it’s powerful. In corporate America, everyone answers to someone else, including the CEO, who answers to the company’s Board of Directors.Ī song title that depicts the life of the passive income earner is “I Did It My Way.” It’s a powerful song that paints a picture of someone charting their own path successfully - like a successful investor. The top tax rate for individuals is 37 percent in tax year 2021, almost twice as high as a passive investor pays on long-term capital gains. You can always get more money, but you can’t get more time.” There are a finite number of hours you can work in a day, which restricts your income - especially if you’re paid by the hour.
Someone once said, “Time is more valuable than money. They enjoy the challenge and the pay increases that come from being rewarded for a job well done. Building a career and “moving up the ladder” is an important goal for many people who work for someone else. They don’t like the solitude, and they don’t mind the quiet time during their commute. You have someplace to go and work every day.Spending 40+ hours per week working alongside other people can create some solid bonds and enjoyable comradery. For many people, some of their closest friends are current or past co-workers. You can form relationships that last a lifetime.The pandemic has cost many people their jobs, and they were able to keep their heads above water financially because of receiving unemployment benefits, state and federal. Most large employers also offer employees the opportunity to participate in a retirement plan, as do some small companies. You’re probably getting employee benefits like life, health, and disability insurance.Like anything, there are always pros and cons - let’s apply that to the topic of active income. It’s catchy alright, but does it tell the whole story? Many people have led very fulfilling lives trading their time for dollars. “Working 9 to 5, what a way to make a livingīarely gettin’ by, it’s all taking and no giving” One stanza from the chorus of the song “9 to 5” is:
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