Saving your earnings is a great way of ensuring financial security for future needs. However, depending solely on your savings may not be the best idea. When an unexpected incident arises, your savings will vanish in no time. This is when passive income comes to the rescue.
What is Passive Income?
Generating income without directly working towards earning it is called Passive Income. Passive Income differs from Active Income in the sense that it is not an individual’s primary source of income. Active income is the money that you earn from an employer or contractor in exchange for hours of labour put into their work.
So there is direct involvement in generating active income whereas, in the case of passive income, comparatively less effort is required. For instance, renting out an extra property is an example of passive income. You are indirectly involved in generating money with lesser effort.
Advantages of Passive Income
- Time-Saving
Working for someone (Active Income) requires you to dedicate ample time and effort. Passive Income enables you to earn money without actively working towards it and saves a lot of time whilst helping generate a definite income flow. Hence, this allows you to invest your time in creating a different source of income, like working a full-time job or freelancing.
- Financial Security
Passive Income is the best option to secure your future financially. In case of any emergencies that require immediate financial attention, passive income comes to the rescue. Our future is unpredictable, so financial security is crucial to sail through difficult times smoothly.
- Beats Inflation
In a period of rising inflation and a decrease in the value of money, having a single source of income can prove futile. Neither your savings nor your active income will save you in a time of inflation. Passive Income acts in your favor in the occurrence of inflation. This is because you always have an option of increasing the prices according to the current market value and thereby avoid bearing losses.
Disadvantages of Passive Income
- Requires Patience
Passive Income has multiple advantages, but like everything else, it also comes with a few disadvantages. Even though it is a great supplement income, setting up an avenue to start the revenue stream can take time and effort. Hence, you must be patient and consistent to reap its benefits later.
- Risky
While starting, Passive Income flow can be affected by much unpredictability. For instance, while investing in the stock market, there is always a risk of the market failing, leading to a huge loss.
Risk is inevitable; hence, you should plan well ahead while starting a revenue stream and ensure beforehand that you have a stable income elsewhere. Even after you have generated consistent revenue, there is a risk of a long delay or an unexpected halt in income.
- High initial investment
In the initial stages, building a reliable revenue source demands high investment. So a huge amount of dedication and diligence is required to build a sustainable revenue stream. Moreover, there is no guarantee of your efforts showing results, and you might end up bearing more losses than returns. So, move forward with your income generation plans, but only if you are confident in your expertise in the field you are investing in.
Wrapping Up
Passive Income requires commitment for it to be safe to rely upon. Reaching that point demands patience and willingness to make enough effort. Look at the passive income as a side hustle and only step into this arena if you have a stable and consistent primary source of income. Otherwise, you will bear more losses than the effort and finances you have invested.
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