The notion of passive income has long been the prized goal of the affiliate marketing and blogger community. It’s the holy grail. Something dreamed about and searched for but more often than not seldom achieved. I’m going to compare passive income vs active income. I’ll also explain why the blogging world sees passive income really as nirvana.
What is the Difference Between Passive Income vs Active Income?
Let’s start by explaining precisely what both forms of income mean…
Income received from performing a service and includes wages, tips, salaries, commissions, and income from businesses in which there is material participation.Source: Investopedia
Active income is the pay you receive for selling your time. Most often this equates to being an employee or an employee of a business you own. You actively work an a pre-agreed period of time, for which you receive a (usually) fixed income: your salary.
Because our time is finite, there’s a limit to the amount of active income we can achieve by selling it. There are 168 hours in a 7 day period (excluding daylight saving days)… but we can’t sell all of it:
- Most adults require between 7 to 9 hours sleep each day.
- We need to eat and carry out our daily “ablutions”!
- We have to travel to and from a working location.
Let’s assume we have an 8 hour working day with 1 hour to prepare for work and 1 hour each way for travel to and from it. This alone reduces our available active working time to 91 hours per week.
Your Available Active Hours
Additionally, employers do not necessarily want to purchase all your available active time… they only want to buy some of it. Many organizations only want your active availability between Monday and Friday.
If we ignore region specific business culture differences and say an average employee package requires 40 hours of your active effort per week. This doesn’t use up all of your available active hours as you’d still have 51 hours left over your 7 days. But of course you have to eat, manage family responsibilities, socialize and you may have a bunch of other commitments that require your time. Those 51 hours dice up pretty quickly, but rarely result in useful and usable blocks.
Hence your available active income potential when you are an employee is limited.
On a more positive note, we see active income from employment as something secure and regular. Though not quite a guaranteed income especially in certain sectors, for the most part we consider active income as something that we can rely upon.
Related Reading: How Much Money Do Bloggers Make?
Earnings derived from a rental property, limited partnership, or other enterprise in which a person is not actively involved.Source: Investopedia
Passive income is the polar opposite of active income. Where active income requires you to sell your time, passive income requires no such investment.
In economics, passive income is defined as earnings requiring no activity or no investment of time from the recipient. We earn passive income, erm, passively! This means you don’t have to do anything to receive it. An example is income from an investment, such as a rental property, equity in a business or stocks and shares.
Unlike active income which is finite, passive income is not restricted to the number of available hours you can sell. You don’t need to available time to earn income passively because your time is not required to generate it. Your income derives from your investment(s).
Of course you may accrue investments through an active income. However you do not start earning a passive income from them until they start to pay a return to you.
As an employee, you might be in a position whereby your active income earns enough to acquire an investment that ultimately earns passive income. At that time, your passive earnings may become enough for you to let go of your active employment. They may also enable you to earn both a passive income and an active income at the same time.
So to summarize, passive income is any revenue you receive as a consequence of some form of investment that pays you yet doesn’t require you to generate it. Unlike active income, a passive income is not earned through selling your time.
Can Blogging & Affiliate Marketing Truly Provide Passive Income?
I mentioned in my preamble that passive income has long been the holy grail for bloggers and affiliate marketers. Gurus tell us we should be striving to work on passive income streams. They tell us active income is a “mug’s game” and a limit to your earning potential. While I don’t agree that employment is a mug’s game, the benefit of detaching your time from the income earning process is clear.
Passive income provides a far greater potential to earn money because it’s not restricted by your available time. Since time is the limiting factor in active income, most employees will struggle to ever earn what’s considered FU money… you should be able to figure out the acronym!
So can blogging and affiliate marketing really provide a truly passive income?
In my view, no they can’t… at least not to begin with.
As a successful blogger or affiliate marketer you have the potential to earn a higher income than that derived from an active income stream. However there’s no way you can do this passively if you’re involved in managing your blog(s) or affiliate marketing system(s).
Starting and maintaining a blog, or any affiliate marketing program, requires a substantial amount of work. If you’re running solo, it takes a huge chunk of time to set your system up before you earn a single cent. Even when you’re set up, you’ll need to tend it to ensure it keeps working.
Of course the income from any online venture can be passive if you outsource ALL work required to set it up and maintain it. In this model you’re an investor of sorts. You’re paying for an asset that you expect to make a passive income at some point.
If you start a blog as an employee, over time it might start to earn enough for you to quit your employment. But it’s still an active income because you have to invest your time. The amount of income may not be as restricted as that derived from contracted employment, but there are still only so many hours in the day you have available to carry out tasks to maintain your system.
Switching from Active Income to Passive Income
Over time, you may be able to outsource all work on your blogging activities, for a financial cost of course. This would move you into a purely passive income mode where you and your time are no longer required to generate earnings. It’s a situation similar to an employee earning an active income who uses it to invest in a property portfolio until it matures enough to enable a move away from selling their available active time.
The bloggers I know, even those making a good living from blogging, do not earn an income passively. They’re deeply connected to their blogs and would perhaps find it difficult to decouple themselves from it.
Many bloggers put themselves out front and center of their blogs… they are the brand of their own blogs. Bloggers like this can still outsource all activities relating to the upkeep of their blog and earn income passively: they effectively become purely a figurehead.
But it takes a LOT of active work to get to this point… or a lot of financial investment upfront if they outsource from day one.
From my perspective, you do not earn a passive income from affiliate marketing or blogging until what you receive as an income outstrips your temporal or financial investment, and you take a back seat in terms of managing it. At that point income transforms from active to passive.
There are many positive reasons why you should start a blog… but let’s be honest about it here and now. Most of us will never achieve a passive income nirvana from blogging, but we can certainly:
- Move away from earning actively through employment that decreases our available time (contracted hours, travel to and from a workplace, etc.).
- Create more opportunities to increase our income.
- Improve our work / life balance.
- Have a larger say in the direction our life takes.
But… don’t believe the hype because blogging is not easy!
It requires a commitment to a consistent schedule of sweat investment over the long term… and there are no guarantees. That said, the benefits of passive income vs. active income are clear to see, and successful affiliate marketing / blogging systems certainly take you closer to passive income nirvana.
That’s how I see it anyways.
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Do you have strong thoughts about passive income vs active income and working online to achieve it? Let me know in a comment below.