Passive income refers to money that you get from investments, royalties, or products and services you've made and started selling. Meanwhile, active income means getting paid for a job, including freelance work and consulting.

Both have their pros and cons, but ultimately, any income is good income—after all, who doesn't like to see money rolling into their bank account? The best part is that you can start making money actively or passively in just a few minutes if you use Whop.

With that said, there's a huge difference between passive and active income, and knowing the two types inside out can help you earn more. More importantly, it lets you pick and choose based on your lifestyle, skills, and financial goals.

So, what's passive and active income all about, and just how can you make money with either?

Let's get right to it.

Types of passive and active income

Before I show you some of my favorite ways to make money online (or otherwise, but online is so much easier!), let's dig into the different types of passive and active income.

Passive income

passive income ideas

Passive income happens when you're earning money without having to do a whole lot of daily upkeep. It may involve some work upfront—sometimes even a fair amount of work—but once you're done setting up the product or the venture, it's going to keep earning you money while you sit back and watch.

There are several different types of passive income, and some may suit certain people better than others. For example, students may need different passive income ideas than retirees! 

Some of the foundational forms of passive income include:

  • Income from investments, such as dividends, interest, stocks, and cryptocurrencies.
  • Rentals, such as renting out a room in your house or renting out your car, but also REITs.
  • Royalties, which means exactly what you think it means: letting people use your creative or intellectual property. This includes things like writing songs or books that others distribute for you and pay you a share of the revenue.
  • Income from digital products, which is my personal favorite. You could make a course, write an ebook, or sell a bundle of graphic designs. You put in some work upfront, but then you're getting money over and over!
  • And, lastly, capital gains. This means stuff like buying a house and selling it at a profit. Pretty cool, but most of us can't just pull money out of a hat to buy a house to flip.

Let's move on to active income.

Active income

Active income is exactly what it says on the label, meaning actively working to get paid. If you don't work, you don't get paid, but fortunately, there are still some ways to make an active income that doesn't have you working eight to 12 hours a day.

So, active income includes:

  • Salaries and hourly wages, which are the most common sources of income. This is the type of scenario where an employer has a job that needs doing, and pays you for the time you spend doing it. Pretty straightforward, if not the most thrilling.
  • Self-employment is essentially the same except there is no singular company or employer you’re making money from. With self-employment, you're your own boss.
  • Commission sales are an additional type of payment you can get for working, usually once you’ve completed a specific project or task.
  • Finally, you can earn tips and bonuses in all of the above forms of active income, whether it’s societally expected (like tipping at a bar) or just as an additional thank you for a job well done from a freelance client or company. 

I find that the best results come from combining active and passive incomes, but I'll talk about that more below.

Key differences between passive and active income

Now that we have the basic explanations of passive and active income down, let's dig into the details a little more. 

There are some big differences between passive and active income. Here are some of the major ones to keep in mind. 

Taxes

tax

The government will tax any type of income you make; this is true for the U.S., but generally also applies to the entire world. 

In the U.S., one of the biggest differences between active and passive income is just exactly how they are taxed. 

Since active income is earned through putting your time and energy directly into a job, it’s a pretty straightforward scenario. You trade your hours for money, and that gets reported to the government for you to be taxed on. 

Taxes on active income

Tax compliance is important! The first step is understanding the different types of tax, and where they apply. Here are the different tax implications for active income: 

  • Any active income you make is subject to income tax. This has a tax rate between 10% and 37% in the United States. Where you fall on that scale depends on how much you’re making. The U.S. has a progressive tax system, so the more you make, the more of a percent you’ll owe. 
  • If you’re an employee, you also pay payroll taxes. The payroll tax is for Social Security and Medicare and is automatically withheld from your paycheck. You pay half of this, and your employer pays the other half. 
  • Self-employment tax is what you owe if you’re your own boss. Unlike someone who is employed by a company, there’s no one for you to split it with. Self-employment tax means you pay all 15.3% of your net income to Social Security and Medicare. 
  • Lastly, you’ll owe state and local taxes. These change depending on what state you’re from. 

Taxes on passive income

Passive income is taxed much differently, since in the situation of passive income there is no direct way to trade the time you worked with the money you earned. 

Here are some of the different ways passive income is taxed: 

  • You can pay qualified dividends or non-qualified dividends. Qualified dividends are based on your income level, while non-qualified dividends get taxed like normal income. 
  • If you earn rental income, it will be taxed like normal income but you get some special deduction options. These deductions include: mortgage interest, maintenance, depreciation, and property taxes. 
  • Capital gains taxes are divided into two categories. Short-term capital gains are gains that you've held for less than a year, and they’re taxed like normal income. If you’ve held the gains for more than a year, you’re taxed at a lower rate. 
  • Business income from passive ventures can still be taxed if you don’t have an active role in the company. You’ll get taxed as though it’s normal income, but you can apply for up to a 20% reduction in the taxable income through the Qualified Business Income deduction. 
  • If you’ve published intellectual property, you may be earning royalties. These are taxed as ordinary income, but you can deduct all of the expenses you incurred when creating the content you’re making royalties on. 

Main differences in active and passive income taxation

Okay, time to get to the point. Here’s a quick sum up of the main differences in these two types of income, and how you pay taxes on them. 

  • Deductions are the first and probably the biggest difference. With passive income, you’re usually given a lot of extra opportunities for deductions. This can help even out the bottom line for you. 
  • Tax rates are different between active and passive income. Passive income like long-term capital gains and stock dividends won’t be taxed at as high a rate as active income. 
  • Self-employment taxes that come with freelancing or creating your own business are higher than other types of taxes. Most of these taxes wouldn’t apply to passive income. 

No matter which type of income you earn, staying on top of your taxes is always a bit of a chore, which is why it's a good idea to work with experts. Whop's got plenty of tax pros who know how to handle self-employment and can help you out.

Effort required

man on laptop

The second major difference between passive and active income is how much effort you put into it.

Active income involves a lot of work, and once you stop working you stop making the money. 

With passive income, you continue generating income without much effort once you’re past the starting phase. On the other hand, some gigs involve a lot of work upfront, but hey, at least you'll be getting paid over and over for all that effort.

Lifestyle impact

How you choose to earn your income definitely impacts your life. Someone earning an active income may have less free time and need to keep to a much stricter schedule. 

Still, it's not that simple. 

Sure, if you’re working a day job, you don't get much of a say in what you do and when; however, people who earn an active income while self-employed tend to have a lot of freedom. You still have to do the work to get paid, but you're doing it on your own terms.

With that said, people who go all-in on passive income often have more flexible lifestyles. 

For instance, once you’ve written a book, that book will keep making you money even though you’re not writing it anymore. It'll still make you money even if you're off having a cocktail on the beach somewhere, which is pretty sweet. 

The trade-off is that an active income may be more predictable. Passive income may fluctuate, and investments usually require having the money to put up front as well as taking longer to pay off. 

Risk and scalability

Risk is another big factor, but that only really applies if you're earning an income through investments. 

Let's say you buy a house to rent out as an Airbnb. That house can either make you a lot of money in rental income, or it can end up costing you a lot of money if it needs continuous repairs. 

Scalability is another factor. More than just a buzzword, it's an important part of any job or side hustle.

Active income can be pretty scalable if you're working for yourself. In traditional employment situations, it's not very scalable. Your boss may give you a raise or you may score a promotion, but there's always an income ceiling up there somewhere.

Passive income can be a lot more scalable simply because you don't need to work on it every day. This frees you up to do other things while the money is still pouring into your bank account.

5 ways to make passive income

The ideal form of passive income is something that doesn't take a lot of time, upfront or otherwise, and still makes you lots of money. 

But to make a lot of money from nothing, you also have to have a lot of money to begin with. That's why my favorite methods of passive income are ones that anyone can do, but there are other options, too.

1. Make your own software or an app

Whop 500k saas kit

Apps and software, especially Software as a Service (SaaS), can be great sources of passive income. 

You don't even need to be a programming whiz to make one—you can team up with a skilled dev and turn your product into a piece of software, then start selling it on a platform like Whop.

You could also buy pre-made white-label software. In this kind of scenario, you take the product they’ve already made and just customize it with the finishing touches to make it your own. 

If you already know how to program, then that’s great. It’s money that you can put right in your pocket by skipping an initial expense. 

But, the bottom line here is that sometimes just a good idea is all you need to start making money, and apps can be great for that. 

Once an app is up and running, it requires a little upkeep but it won't be anywhere near as time-consuming as a full-time job (unless you want it to be).

Skills needed: Making an app yourself requires programming skills, meaning languages such as Java, Kotlin, Swift, or Python. If you're not the one doing the actual coding, all you need is some business savvy.

Earnings potential: Successful apps and SaaS can make you up to $2,000 per month, but there's potential for a lot more.

2. Invest in stocks or crypto

trust my stocks

Investing is the most passive form of passive income, but it comes with a glaring downside: you'll need some money upfront. 

However, you can start out small. I started my crypto portfolio with a mere $100 and was able to grow it into a nice nest egg, and you can do the same with stocks.

There are a lot of different ways to approach investing. There are cryptocurrencies, dividend stocks, ETFs, mutual funds, and REITs (plus a number of other schemes and investments).

If you're new, I recommend joining a trading community so that you can get some guidance from seasoned traders. It's a quite intimidating side hustle, but once you find your footing, you can make a lot of money. 

The downside? Most markets are volatile, so you never know if you'll make a profit or not.

Skills needed: Financial literacy is a good start, but you don't need a degree in business or finance to do this. There are lots of resources on Whop to help you get started if you're new.

Earnings potential: Investing in the stock market comes with varied results. You can expect a return of about 3-10% in a year, but it depends on how the market performs. Different investments can provide different results, with some crypto (mostly memecoins) blowing up like crazy and giving returns of 100% and more.

3. Get into affiliate marketing and digital dropshipping

whop affilaite marketing

Affiliate marketing and digital dropshipping are two of my favorite ways to make a passive income. Essentially all you're doing is recommending something cool to a bunch of people, and if they buy it with your link, you'll get some money. What's not to like?

With both those things, the key is having an audience that wants to know what you like. This means jumping on socials, creating content that aligns with the stuff you want to promote, and then occasionally dropping affiliate links. (I know I bought stuff just because I liked seeing them in a TikTok, and many others do it too.)

Digital dropshipping is even easier, as you're promoting digital products that tend to be a lot easier to deal with. No shipping, no country-specific restrictions, just show off a course or another digital product that you like and get paid for it. 

Whop has a fantastic affiliate program that lets you promote whops you like and get a huge chunk of each subscription or sale. And, if you have your own whop, you can get others to promote it for you and get more sales. Win-win!

Skills needed: Content creation, marketing, and social media.

Earnings potential: How much you earn from affiliate links will depend on your audience, and I mean both its size and engagement rates. Someone with a mid-sized following can expect to make between $500 and $1,000 a month, but high-ticket affiliate marketing can be much more profitable.

4. Sell digital products

catching pips pro

Selling digital products is such a diverse way to make a passive income, which is exactly why it's one of the best. You get to approach it your own way and build a library of products that will profit on and on—all the while you're doing something else.

The idea is that you'll put in some time upfront, create your product catalog, and then put it up for sale (Whop is a great option here, being one of the best platforms to sell digital products).

Your options include:

That's just the tip of the iceberg, and you'll make even more money if you combine all of these into bundles of digital goodness. More on that below.

Skills needed: This depends on the product, but you can often teach yourself a lot of these.

Earnings potential: The potential here is huge. Some of Whop's top creators earn up to $250,000 monthly. Even outside of the top earners, lots of people break $2,000 and more.

5. Create a paid membership or subscription

whop subscriptions

Creating a membership or a subscription is a really flexible way of generating passive income. You can really center this around anything that interests you, as long as it also interests enough other people to generate customers! 

For example, if you’re a photographer, you can offer stock photos for a monthly subscription fee. Anyone who has a regular need for stock photos can pay the fee and have constant access to anything you’ve chosen to share. 

Or, if you’re a content creator, you can have a membership option that allows people to support you in a more direct way than just interacting with you on your socials. 

You can include incentives like bonus materials or video extras, or do a monthly chat with members of the community. Better yet, set up a community chat for your fans where they can talk with you and each other on a regular basis.

Skills needed: Content creation in many shapes and forms, and/or knowledge of the topic that your subscription will be centered around. 

Earnings potential: Subscriptions and memberships have really high-income potential, but it depends on the amount of time and content you put into them. You might make around $500 per month, but you might also make $5,000 and more.

5 ideas to gain active income without a full-time job

Working a 9 to 5 is an obvious source of active income, but it's far from the only source. You can make a lot of money on top of (or instead of) a day job, too.

Here are some of the most popular and flexible ways to earn active income. 

1. Start freelance writing

write up an m

Freelance writing is what I've been doing for over a decade, so you won't be surprised to hear that I recommend it as a source of active income. And, contrary to popular belief, it's totally possible to make money writing.

To get started as a freelance writer, you’ll need a portfolio. This is so you can show off your skills to potential clients. It's okay if you haven't done any commercial work—just create some writing samples for the niches you're interested in.

Once you have a portfolio with some of your best work, look for clients on platforms like LinkedIn, Facebook, or Reddit. Better yet, pitch directly to publications. When it's time to get paid, you can send them a quick checkout link.

Don't fancy working with clients? Start writing ebooks and become your own boss instead.

Skills needed: Writing (duh), but also copywriting, technical writing, and SEO. Many writers later go on to pivot into editing or content strategy.

Earnings potential: Freelance writers are often paid per word, and beginners tend to start around $0.05 to $0.15 per word, which means $50 to $150 for a 1,000-word blog post.

2. Run a mastermind

kc trades

The ability to bring people together is a skill, and that’s exactly the kind of skill you’re exhibiting when you create a mastermind group. With a mastermind, you are fostering a place where people can share their insights, talk strategy together, and challenge each other to do better and more. 

Mastermind groups are pivotal in creating inspiration across a lot of genres. Think weight loss groups, ecommerce think tanks, or stock market investment strategy discussions. 

Whop makes it super easy to create a mastermind using the Masterminds app. All you need to do is decide what niche you want to develop your mastermind around. 

Then, you just set up your whop—complete with membership fees and the structure you prefer for meetings and discussions, and then find your people. 

Skills needed: To run a mastermind, you need to be an absolute expert at something. That's your main skill—everything else comes second.

Earnings potential: Masterminds are high-ticket offerings and tend to rack up high prices, but you'll only work with small, exclusive groups. Some masterminds cost $2,000 to $15,000 per member.

3. Make money as a personal trainer

personal trainer

As a fitness trainer, you can help clients achieve their health goals through fitness programs, coaching, one-on-one sessions, and live classes. There's also the whole nutrition aspect to it, too, but you might need to be licensed—check your local laws before diving in.

This type of active income sounds like you'd need to go out and work at a gym, but you can also offer these services from home. You can sell ebooks, online courses, personal training sessions, or access to exclusive fitness communities

Pro tip: Get on social media quickly. People love success stories and results, so socials are a great way to market yourself.

Skills needed: Fitness trainers usually have certifications from organizations like MAS, ACE, or ISSA. You should have some kind of basis in exercise science, nutrition, and injury prevention. You’ll also need to know how to market yourself to attract clients. 

Earnings potential: As a newer trainer, you can charge between $20 and $50 an hour. A more experienced trainer can get between $75 and $150 an hour. You can also offer group sessions or sell online programs people can do by themselves to supplement your income. 

4. Become a translator

translator

If you speak more than one language, you can always make some extra money by selling translation services in your free time. 

Platforms like ProZ, TranslatorsCafe, and Upwork can serve as your portfolio of experience and help you find clients. 

Translators have a harder time now because of AI tools, but on the other hand, those tools can actually help you if you use them the right way. Many translators pivot toward editing AI translations instead—trust me, there's still plenty of stuff to fix in those.

Skills needed: You should be fluent in two (or more) languages; being certified helps. Many clients will expect familiarity with tools like MemoQ and SDL Trados. 

Earnings potential: This highly depends on the topic; complex, technical, or legal translations pay a lot better. Beginners earn $15 to $25 per hour, but expert translators can quote up to $100 per hour.

5. Set up an exclusive community

nurse community

You might have noticed that I've mentioned running a community a few times in this article, and that's because it's a great way to supplement other things that you do, such as writing ebooks or selling digital products. But, communities can be their own thing, and if actively managed, they can bring in a lot of money.

The idea is that people long for communities that are actually active. A lot of the time, if you join a random Discord or Telegram server, it'll have very little conversation—and the conversations that take place may be limited to a clique of people. 

Such communities don't have much value, and most people prefer groups where they can chat with experts, not to mention groups where they can feel included. No one likes being ignored.

You can set up your own whop (and combine it with a Discord or a Telegram server if you want to) and create a thriving community centered around a specific topic or goal. 

The goal can be to learn from each other or to talk about your experiences—it's up to you. If you put in a lot of work into your community, it'll be worth it, as you can use it to upsell things like ebooks or courses, or even collect tips for your work.

Skills needed: You need to be able to manage a community and know how to keep conversation flowing. Balance the kind of environment you want your community to have with understanding what you need to do in order to keep it growing. 

Earnings potential: Membership fees range from $15 to $500 per month, with some communities being priced even higher.

How to make passive and active income at the same time

You’ve probably realized by now that there are perks to both passive and active income. 

Good news: they aren’t mutually exclusive. There are plenty of jobs where you can make both at the same time. 

Let's say you're a content creator. Making content is your source of active income, because each video, short, TikTok, or Instagram post is a potential source of revenue. If you stopped making these, the source would dry up.

But, you can make a lot more money by expanding your reach. 

Write up some ebooks, create a course, and start selling those online, perhaps on Whop. They'll sell more and more as your following grows, becoming an excellent source of passive income.

This same philosophy applies to most jobs. For example, if you’re a graphic designer, you can both actively collab with clients to create new designs, and have design kits up for sale where your work is already finished. 

The idea is that you're never relying on a single stream of revenue, and even if you decide to stop actively working on a particular hustle, it'll still help you earn money every week or month through passive income.

Make money the way you want with Whop

average whop creator

So, let's settle the matter of passive vs. active income. Which one is better?

The answer is often going to be passive income—after all, it's money that flows into your bank account without you needing to constantly work for it. 

But, if you ask me, the real deal is having the option to make either passive or active income, and you can make both with Whop.

With Whop, you're in complete charge of what you do, when, and how. 

You can zone in on passive income and create a robust catalog of digital products that will make you money every single day. Or, if you have time, you can add running a community or offering one-on-one coaching to that catalog, turning it into a full-fledged business and a great source of active income.

Doing all of this with Whop is easy. You can sign up and create your own whop in minutes, and it's completely free. 

Set up subscriptions, one-time payments, and bundle your products for the highest chance of success.

Pick from a library of pre-made apps and let Whop handle everything from payments to fulfillment—you can just focus on growing your business. 

You don't have to choose between passive and active income. Focus on doing what works best for you.