There are two ways of making money: actively and passively. With the first active way of making money you get paid as you work, which means you trade your own time in exchange for money. The whole employer - employee system where people get paid per hour is designed like that. The downside of the system for the employee is that you are inevitably hit a certain level of income for one simple reason - every one of us has a limited number of hours in a day. The opposite - passive income suggests that you keep making money even while you rest. This is the way of income I am going to talk in this article.

Running a business

When a person decides to start his or her own business their primary reason for doing that is to develop a stream of passive income. Once a business is set and running smoothly there is not much left to do for a business owner than to enjoy profits. However, too often business owners find themselves caught up into routine business operations that they end up working in their business just like they would for someone else. This becomes active way of making money again. Such way of conducting business is often referred to as ‘buying yourself a job’. The advice often given is to work on the business not in the business.

Having your own business was pretty much the only way to get passive income stream before the invention of the Internet.

Making money online

The Internet automated the process of delivering the product to the consumer (I discuss the principle in detail here). This means that once you put your site online and it starts producing income on autopilot it requires little to no maintenance providing you with a lot of free time. You can use this time to build another site or go on vacation. Given the condition that those sites make money your income level will have no limitations.

The main difference between active and passive ways of income is that you work to maintain income with the first one while increasing your income with the second one.

This principle explains exactly how people make money online. A few come out with world-breaking ideas that are bought out for millions by giants like Microsoft and Google in their infancy. Most of the people who make money online start small and build up their networks day-by-day.

“They still do the job” - you might argue. But they can take a day off anytime, don’t need to ask their boss for permission to take vacation or worry about how a sick leave affect their position. Besides, people who work online normally enjoy what they do, which means they receive the best of both worlds. The work doesn’t feel daunting to them and it doesn’t demand their constant supervision like having a business does. You don’t need to look after your sites like you do for your employees - there is a hosting provider who takes care of their operation.