Suppose you’re a writer. One way to earn active income would be to get a job writing for a magazine or newspaper. You could get paid to write articles which your employer publishes and owns. You would receive a wage from your employer for the service you provide. If you stop writing in this scenario, you’ll stop getting paid.
Now suppose you offer your writing skills as an independent contractor. You market and sell your services to people and businesses. You do this on a “work for hire” basis, getting paid for each job you complete. This is also active income. If you stop working, your income ceases.
Now suppose you write a book and sign a publishing deal with a book publisher. The publisher gets your book into bookstores and also sells it online. They send you royalty cheques twice a year based on sales of the book. You receive a percentage of what they receive for every copy sold.
Five years later you’re still receiving cheques from them. Your royalties are passive income.
Even if you stop working after your book is published, you’ll continue to receive royalty payments for the book that did get published.
You could potentially continue to receive these payments for the rest of your life. Your book may eventually be purchased by people who aren’t even born yet.
Notice that in each scenario, your underlying career is essentially the same. You’re still the same writer. You’re just using different strategies for earning income.
You could even apply all three strategies simultaneously, working at a regular job, doing contract work on the side, and also writing a book and getting it published.
At any time you’re free to use active income, passive income, or hybrid strategies — or any combo of these you wish. You don’t have to quit your active income job to set up streams of passive income. For some people this is easier, however, since a regular job can chew up a lot of time, making it harder to find the time to create passive income.
Sometimes you can even get paid to create your streams of passive income. For instance, our writer may receive an advance for his/her book from the publisher. So not only does this writer earn long-term passive income, but s/he also gets paid to set it up.