There are three main types of income streams: active income, passive income, and portfolio income. Each type of income stream has its own unique characteristics and advantages.

  • Active income: Active income is the income earned from actively working and providing a service or product. This includes salaries, wages, and commissions earned through traditional employment. Active income is typically the most common type of income stream for individuals and households. However, the downside of active income is that it requires ongoing effort and time to earn it, which limits the potential for growth and diversification.
  • Passive income: Passive income is income earned without active involvement. This includes rental income, royalties, and income generated from investments such as stocks, bonds, and real estate. Passive income requires upfront investment and effort to establish, but once established, it can generate income without much additional work. Passive income provides the opportunity for growth and diversification, as it allows for the creation of multiple streams of income.
  • Portfolio income: Portfolio income is income earned from investments in the stock market, bonds, mutual funds, and other financial instruments. This type of income is generated from capital gains, dividends, and interest. Portfolio income is less active than active income, but more active than passive income, as it requires some level of monitoring and management. Portfolio income can provide the opportunity for growth and diversification, as well as potentially higher returns than other types of income streams.