Passive income and capital income are two different types of income that people can earn. Here are the five key differences between them:
1. Definition: Passive income is money earned from sources that require little to no effort to maintain. Examples of passive income include rental income, dividends from stocks, and income from businesses that operate without your direct involvement. Capital income, on the other hand, is income earned from investments in capital assets, such as real estate or stocks.
2. Effort: Passive income requires little to no effort to maintain once the initial investment is made. Capital income may require some effort, such as monitoring the stock market or managing rental properties.
3. Risk: Passive income sources typically have lower risks compared to capital income sources. For example, rental income from a property has a lower risk of fluctuation compared to investing in the stock market, which can be more volatile.
4. Taxation: Passive income may be subject to a different tax rate compared to capital income. Rental income, for example, may be taxed at a different rate than capital gains earned from selling stocks.
5. Growth Potential: Capital income has a higher growth potential compared to passive income. This is because investments in capital assets such as stocks or real estate can appreciate in value over time, resulting in higher returns. Passive income sources such as rental income, on the other hand, typically have a fixed income stream that does not grow over time.