Passive Income

Passive income vs regular income

It’s not until you truly understand the power of passive income that you realize how much more valuable it is than regular income.

Some people are afraid from passive income, they seem to feel like their castle might tumble to the ground with no warning and live them with nothing unless they are personally generating every single dollar they make every day. Passive income sounds too good to be true, so they’ll rather go to work every day and earn their paycheck, or what we call “regular income”.

But remember, passive income isn’t free money, it’s not even easy money. Passive income is a lot of work, but it’s work that keeps generating income over time, even after you are done working.

So what are the advantages of passive income vs regular income?

Little associated costs

Regular income has a lot of costs associated to it. In order to get your paycheck at the end of the month you’ll need to get to the office every day (transportation), you’ll need to be dressed appropriately (clothing), you’ll need to eat, sometimes alone, sometimes with coworkers, sometimes possibly with clients (diets). When people say they make $XXXX a year they never factor in those expenses.

Passive income on the other hand has none of those indispensable costs associated to it. It might still have some, such as hosting if you generate your passive income online for example, but those costs will be very very low, and always predictable.

It’s the only way to generate wealth

You can’t save your way to wealth, there simply isn’t enough time in a lifetime. When you make regular income you are basically trading time for money. You can be paid $20 per hour or $200, but at the end of the day there are only so many hours you can bill. The relationship between the hours you work and the amount of money you make is linear.

In order to generate wealth you need to make that relationship exponential, and the way to make it exponential is passive income.

Work today and create a source of passive income. Create a second one tomorrow while todays’ is making money for you. Repeat. That is the only way to generate real wealth.

Geographical freedom

Unlike regular income, passive income will give you the freedom to live wherever you want. Since you won’t have to be actively working to earn your monthly paycheck you don’t necessarily need to spend all your time in your hometown, or in the same place.

This is not only cool by itself, but it also means that you could live from your passive income sooner that you imagined. If you work a regular job for regular income you are forced to spend (rent, groceries, transportation, etc.) in the same place where you make your money. The cost of living can change drastically from one country to another though, and being free to live wherever you want means you can take advantage of that. Do you like the beach? How does Bali sound? Two months of expenses in a big city like New York, San Francisco, London or Paris will buy you 6 months living like royalty in Bali.

TAX benefits

In most economies passive income pays less taxes than regular income without you having to do anything. Again, that is already cook by itself, but if you play your cards right you could pay really very very little, close to nothing!

A whole book could be written on this matter, which is not the goal of this post, but just to give you a quick idea. If you live in just one place you must pay taxes there. But imagine you decide you want to take advantage of the geographical freedom we talked about earlier. As long as you don’t spend 6 months or more per year in any given country you can choose were you want to pay your taxes, and if you pick wisely you could be saving a lot of money in taxes.

Free time

Probably most important than anything else, passive income will give you free time to do whatever you want. If you want to travel, travel, if you want to study, study, if you want to work, work. But whatever you decide to do you’ll know that you are doing it because that’s what you want to do and not because you have to.