Welcome to ‘Finance 101’; your go-to guide and bi-weekly series for breaking down complex finance jargon!
If terms like mutual funds, bonds, or REITs sound like a foreign language, you’re not alone. Trust me, my head used to hurt just thinking about them! 😅 Many people find navigating the world of finance confusing. That’s why we’re here, to demystify even the most mind-boggling financial concepts while keeping things fun and engaging. Because honestly, as we like to say in Naija, “I cannot come and kill myself”. Join us on this journey to boost your financial knowledge and invest in that future! 🚀
Let’s paint a picture:
You work a full-time job, hustle freelance gigs on the side, and you’re saving steadily. Great.
But if you ever stopped working, would the money stop too?
That, my friend, is the key difference between active and passive income. And understanding both could be the cheat code to financial freedom.
Let’s break it down (InvestNaija style).
🏃🏾♂️ What Is Active Income?
Active income is money you earn in exchange for your time and effort. If you don’t show up, you don’t get paid. It’s that simple. Examples of active income include wages, salaries, bonuses, commissions, tips, and net earnings from self-employment.
Think:
- Your 9–5 job
- That baking side hustle
- Freelance design gigs
- The ad-hoc money you make from tutoring or braiding hair
You’re putting in the work. You’re showing up. You’re sweating for that money.
And there’s nothing wrong with that. This is how most people start.
But here’s the thing: active income is limited by time. You only have so many hours in a day.
🛋️ What Is Passive Income?
Now here’s the sweet spot: passive income is money you earn without constantly trading time for it.
You might work upfront (sometimes hard), but once it’s set up, it earns for you whether you’re working, chilling, or even sleeping.
Examples:
- Rent from property
- Dividends from stocks
- Interest from savings or bonds
- Royalties from a book or online course
- Returns from mutual funds like the Chapel Hill Denham Money Market Fund
You don’t have to be a millionaire to earn passive income you just need to start with what you have and be consistent.
So, Which One Is Better?
The short answer? Both.
Active income pays your bills today. Passive income builds your financial freedom tomorrow.
It’s not either-or. It’s “how can I earn both?”
⚖️ Real-Life Combo
Let’s say Nkechi is a content writer earning ₦350,000/month. That’s active income.
But every month, she invests ₦50,000 in mutual funds and buys small units of dividend-paying stocks. Over time, these investments start earning her extra income even when she doesn’t lift a finger.
That’s passive income.
The long-term goal? Flip the script so your passive income can cover your bills, and your active income becomes extra.
🙋🏾♀️ How Can I Start Earning Both?
Good news: you don’t need ₦1 million or a finance degree.
Here’s your starter pack:
✅ Use your skills to earn → freelancing, remote work, small business hustle
✅ Invest your earnings → mutual funds, savings plans, stock market
✅ Reinvest the returns → let your money work overtime
✅ Be patient → passive income builds gradually, not overnight
🛠️ Tools to Help
- TradeIN: Buy and sell NGX-listed company shares on InvestNaija
- SaveIN: Build your emergency fund and short-term cash reserves
- PlanIN: Invest towards long-term goals and let the experts help you earn passively
- CHD Funds: From low-risk Money Market Funds to equity-focused ones like the Paramount Fund
Final Thought:
Don’t work forever just to get by.
Work today. Build for tomorrow. Rest eventually.
That’s the power of knowing how income really works. And now? You do.
Want to know how stocks are performing today? Curious about which sectors are booming? InvestNaija breaks it down with our Daily Market Watch delivered straight to your inbox. It’s stock market news, simplified. Think, useful info to help you stay ahead.
Simply sign up for our weekly newsletter
Reach out to us on all our social media platforms and let’s share your story with the world! 🌍 OR fill out this quick form: click here. #INVESTinSTORIES | Because everyone has a money story, so what’s yours?
Ready to start your journey? Download the InvestNaija app today from the Apple App Store or Google Play Store. With tools like LearnIN, SaveIN, and InvestIN, you’ll have everything you need to invest confidently and wisely.
