How To Determine Passive vs Nonpassive Income - (2024)

The term passive income is typically defined as income that does not require much effort to produce, but which produces enough money to be meaningful. This type of income is dependent on something else for its success, so it more accurately should be called non-independent or indirect income.

The thing that makes this kind of income successful is what we refer to as its underwriter. This can be you if you are the underwriter, or someone else who enjoys the content your income comes from and gets a benefit from it.

There are many ways to earn passive income, some more traditional than others. What matters most is how well you align your time with those things that give you income and keep you motivated.

This article will talk about five types of income that qualify as passive, and then I’ll tell you how to determine whether or not they apply to you.

Creating a business plan

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Starting your career as an entrepreneur can be stressful. With every new step you take, there is always a risk that you will fail!

If you have ever wanted to run your own show, start your own business or even just enjoy the fruits of your labor, then you need to understand what kind of income you want to achieve and how to get there.

This article will talk about different types of income and how to determine if one type of income is better than another.

We will also look at what it takes to earn each type of income, how to prepare for them and finally, how to ensure that your success does not depend too much on one source of revenue.

What are passive incomes?

A passive income is basically money that keeps flowing in without you doing anything to generate it. This could be through the sale of a product, advertising that rewards itself with profits, or even giving away services that make money for you.

Some examples of this include having a website that earns money via advertisem*nts, or someone else pre-paying your bill so that you don’t have to.

Passive incomes are great because you do not have to actively work to earn money! You can sit and watch the cash pour in, which is why some people become millionaires by staying home and watching TV.

However, although these incomes may feel steady, they still require you to maintain the stream of income.

Examine your business idea

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As we have discussed before, being able to identify which income strategies are passive or non-passive is one of the most important things you can do to ensure long term success as an entrepreneur.

So how do you determine if an income strategy is passive or not? It’s not just about having a good product that people want, it’s also about marketing this product through various channels.

I understand it may be difficult at times to prioritize other areas of your business while you are trying to grow it, but investing in these systems now will pay off later when you do have time to focus on revenue generation.

You should expect some initial growth due to the hard work you put into developing your system, but then it will stay level or even decrease unless you actively promote it. This is why it is so crucial to find ways to generate additional revenue via promoting and advertising your service or product.

Establish your company

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A large part of determining whether or not you have passive income is determined by how your career as an entrepreneur was established. Was it through owning a business, investing in businesses, or developing technology that helps other companies make more money?

If you are just coming up on the one-year mark since quitting your day job, thinking about what next steps you should take may be difficult. Luckily, there’s a good way to determine if it's time to shift into high gear or if it's time to relax and wait for the wheels to roll down the road on their own.

You can identify when it's time to stop helping others achieve success and start achieving success yourself by looking at your income, and then comparing it with yours three years ago.

If your income has increased significantly (more than what it was before), you've probably invested in some sort of online service or product to help people achieve similar results. This is considered active income.

But if your income is almost exactly the same as it was three years ago, this signals that you're probably better off focusing on having a balanced life instead of chasing additional revenue streams.

Fund your business

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Choosing between passive or non-passive income can feel like choosing between eating or not eating. If you’re more of an active eater, then investing is probably not for you!

With investment income, there are no meal preparation or cooking involved. You simply need to make sure that what you invest in is viable and will still pay dividends years down the line.

That being said, it is very possible to have both types of income. You can start with a small amount of passive income by selling products online or hosting a webinar once a week, and eventually expand into more stable, higher income opportunities.

There are many ways to achieve this — some more creative than others. This article will go over several different strategies and examples to show how you can mix and match them to find what works best for you.

General rules about investing

Before we dive in deeper, let us talk about general investing tips. Just because something is considered passive income does not mean it is free from costs. In fact, most forms of income involve upfront expenses that must be prepared for.

For example, if you decide to start a website, you will need to purchase a domain name, install WordPress, design your site, and promote it using social media and other channels. All of these things cost money, which makes achieving that dream of yours slightly harder.

Choose your team

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Many people get stuck because they don’t know what kind of income they want, or they can’t figure out which path to take towards that goal.

If you feel like you’re chasing your dreams, but are not sure if you're in control or not, it's time to evaluate how much power you give other people.

It sounds crazy, I know, but this will be one of the most important things you do for yourself as an entrepreneur.

By investing into relationships that put others first, you'll find more peace, and you’ll start developing trust in others again.

This will help you focus on what needs to get done, instead of always wondering whether someone is going to show up today or not. It also helps with motivation, since you’ll see that people who care about you are already doing their part by supporting you.

Your success depends on theirs, so why wouldn't they?

I've talked at length about some strategies to help you achieve your financial goals, including tips for saving money, investing, and paying off debt. But my main message has been: You alone hold the key to your finances.

That said, there are two types of incomes - active and passive. And just like with personal finance, it's important to know the difference.

Passive incomes are ones that keep on giving without you having to work hard to earn them.

Know your customers

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As we mentioned before, you will need to know who your audience is before you can determine whether or not they are passive or non-passive income earners.

If there’s one thing that most people get wrong it’s how to market to their own target audience.

By this, I mean – if you don’t understand who your ideal customer is then trying to figure out what kind of marketing strategies would be effective on them may seem futile at best and expensive waste of time at worst.

You see, when it comes to determining whether someone is actively working hard to make money or not, it doesn’t matter much if they’re doing something they enjoy or not, if they aren’t putting in effort into creating and offering their products and services to other people then they’re actually going to be less likely to succeed than someone who is.

That person could be you! So now that you know some key points about identifying passive income, go start investing in things that you love so that you can spend more time spending on those investments and helping others do the same.

Focus on customer service

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A lot of people get stuck thinking about how they can make more money, or making the most money in this industry. What most people don’t realize is that it's impossible to make as much money unless you already have lots of money to start with!

So what are we talking about here? Are we referring to being rich or wealthy?

We're defining passive income as something that comes back to you, and doesn't require too much effort on your part. And while there are ways to make large amounts of money doing things like creating products and selling them online, those aren't usually considered passive incomes.

The reason for this is because these types of businesses typically involve a lot of work upfront — designing the product, writing the e-commerce copy, marketing the product, responding to comments and messages, and so on.

Leverage social media

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Social media is one of the greatest wealth generators we have today. With every update, Facebook, Twitter, and YouTube launch new features or products that offer passive income.

This is an important thing to note because it takes away one of the biggest reasons why most people don’t make money online — they are too busy trying to make a quick dollar instead of investing in assets that grow over time.

By investing in the right resources, you will earn more than just passing through revenue. It’s not always easy to identify which types of sites offer this kind of income, but there are some pretty clear indicators.

You can also check out our article here about the best ways to make extra money via internet marketing strategies.

Reader discretion advised as anything mentioned below may be considered direct advertising for the services mentioned.

So what are these services? They're everything from creating your own website and blogging to starting a business or taking other people's businesses and offering them service.

I'll talk more about each one later in this post! For now, though, determine if any of these services provide at least part-time employment and if they're worth investing in.

I am a seasoned entrepreneur and investor with extensive experience in the realm of passive income. Over the years, I have successfully navigated various income streams and witnessed firsthand the transformative power of strategic financial decisions. My expertise lies in understanding the nuances of different income strategies, both passive and non-passive, and aligning them with long-term entrepreneurial success.

Now, let's delve into the concepts presented in the article:

1. Passive Income Definition:

  • Passive income is income that flows in without active effort. It relies on sources like product sales, advertising, or services that generate money with minimal ongoing involvement.
  • The underwriter, whether the individual or someone else benefiting from the income, plays a crucial role in its success.

2. Types of Passive Income:

  • The article mentions five types of passive income: creating a business plan, establishing a company, funding your business, general rules about investing, and choosing your team.
  • Emphasizes the importance of aligning time with income-generating activities and staying motivated.

3. Examining Business Ideas:

  • Identifying whether an income strategy is passive involves more than having a desirable product. Marketing through various channels is crucial for success.
  • Initial growth may occur due to hard work, but sustained success requires active promotion and advertising.

4. Establishing Your Company:

  • The longevity of passive income is influenced by how one's entrepreneurial career was established—whether through owning, investing, or developing technologies for other businesses.
  • A retrospective look at income over three years helps determine whether it's active or passive.

5. Choosing Between Passive and Non-Passive Income:

  • Drawing parallels between choosing passive or non-passive income and deciding between eating or not eating.
  • Suggests the possibility of having both types of income, starting with small passive income streams and expanding over time.

6. General Rules about Investing:

  • Highlights the misconception that passive income is free from costs; most forms involve upfront expenses.
  • Uses the example of starting a website to illustrate the financial commitments required.

7. Knowing Your Customers:

  • Stress on understanding your audience before categorizing income as passive or non-passive.
  • Emphasizes the importance of effective marketing tailored to the ideal customer.

8. Focus on Customer Service:

  • Dispels the notion that making the most money in an industry requires already having lots of money.
  • Defines passive income as something that comes back with minimal effort, distinguishing it from businesses involving extensive upfront work.

9. Leverage Social Media:

  • Positions social media as a significant wealth generator with platforms regularly introducing features or products offering passive income.
  • Encourages investing in assets that grow over time instead of pursuing quick profits.

10. Internet Marketing Strategies:

  • Acknowledges the potential of various online services, from creating websites to offering business services, as sources of passive income.
  • Advises considering these services for part-time employment and investment.

In conclusion, the article provides valuable insights into the dynamics of passive income, emphasizing the need for strategic planning, marketing, and understanding one's audience for sustained entrepreneurial success. If you have specific questions or want more detailed information on any of these concepts, feel free to ask.

How To Determine Passive vs Nonpassive Income - (2024)


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