Active income – What it is, definition and concept

Active income is income that is achieved after doing a job permanently that requires time, dedication and, sometimes, capital.

That is, active income is that which is obtained by dedicating time and effort on a regular basis.

Active income is the most common. A person who performs a certain job in exchange for a salary is receiving an active income. This type of income is very time-bound.

People have a very limited resource, which is the time available to perform the functions of a job. For this same reason, any worker will have a salary ceiling depending on the responsibility and difficulty of the position they perform.

In relation to this, the active income that a person who does not own a company can receive will depend on their productivity. If you do not know this concept, I will summarize it so that you understand it in a simple way. Productivity is the relationship between production and time. If you produce more in the same time or if you produce the same in less time, your productivity is increasing.

That is, if you are able to perform your functions in your company correctly in less time than stipulated in your working day, you can use that extra time to generate other active income. However, once 24 hours a day are gone, you won’t be able to produce any more.

It’s the same from a business perspective. The income generated thanks to the main activity of the company is active income. To achieve this income, the company must dedicate the time of its employees to perform certain functions. In turn, these revenues are also limited to the production capacity of the workforce. If you want to increase, you will have to increase the staff.

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Differences between active and passive income

The difference between these two types of income is that, in the case of passive income, they are generated on a regular basis without having to dedicate time permanently.

Although to generate a passive income it is not essential to make a previous investment, it is the most common way to achieve it. For example, a passive income can be the rent that a person pays you to rent you a house.

In this case, you as the owner have had to spend time looking for the property and capital to buy it. You will also have to be aware of fixing breakdowns or buying furniture, but this job does not require permanent dedication.

Examples of active income

The main examples of active income are related to the world of work:

  • The salary of a mathematics teacher in an educational center.
  • The income of a baker from the sale of the bread he makes every morning.
  • The income of a highway construction company.
  • The salary of a person who is dedicated to the cleaning and preparation of hotel rooms.

In conclusion, active income is received by the majority of society. They are all those that are obtained after permanently dedicating time to produce goods and services.

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