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Traditionally, there are two types of income: active and passive. Active income is your 9 to 5 job, it’s what you devote the most time and effort to. Anything based on trading time for money that results in a direct result is an active income. On the other hand, passive income is established through capital upfront. The most common example of passive income is investing. A sum of money is initially invested by an individual (capital upfront), and a portfolio is created with money allocated to various sources. Over time, your money works for you and you receive what’s called “mailbox money”- checks in the mail from passive income.

A Third Type of Income

Although active and passive are the two types of income people are familiar with, there is a third category that is just as important: active-passive income. It’s simply a combination of the two. The “active” part of this type of income comes from taking what you’re good at- your experience, knowledge, and expertise, and combining that with things like capital and access. When you find a place to devote this combination of skill and capital, it then produces a passive stream of income. Basically, you invest a much smaller amount of time and money than in active income, and this investment results in a passive income.

One of my sources of active-passive income is being head of acquisitions at a firm in New York City that specializes in multi-family apartment investing. The active part occurred when I had to acquire the asset, and our team worked to capitalize it, implement a business plan, and hire a management team to run day-to-day operations. After all those things were in place, the revenue generated from the investments became passive. I now have a steady stream of income coming from a source that is not my main point of focus.

Why is this Important?

Don’t let your options be limited to just active and passive income. The critical takeaway from this is to always be thinking how you can diversify your income. Start with your active income. It’s understood that this is what you spend almost all your time and effort on, and your life and career is built around. So make that your priority and succeed in it. Next, add some active-passive income. Identify what you’re good at and what resources you have, and use those to create a passive income. Think outside the box and think differently. Finally, take the income from those first two sources and put that towards opportunities and investments to secure your future.

If you can embrace diversification, you’ll set yourself up for financial stability. You’ve put the hours into your active income, and you have money coming in. Spread that income across active, passive, and active-passive sources and you’ll undoubtedly achieve financial success.

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