If we designate briefly and informatively, then assets are everything that a company has and everything that can generate profit. They are one of the components of the balance sheet and include all tangible and intangible property of the organization.
Example: real estate for rent, a car for rent, etc.
Liabilities also form the basis of the balance sheet. Liabilities are the totality of the organization's debt obligations. That is, it covers all sources of formation of the enterprise's funds, as well as everything that requires investment.
Example: real estate or a car that needs to be serviced.
The totality of assets and liabilities is absolutely all property that the enterprise/company has in monetary terms, as well as sources of receipt.
Cash flow is also called the flow of payments or money. What is it? The difference between the assets and liabilities of an organization. Payments combine receipts and payments of funds, regardless of the type of their formation. This indicator can be positive, zero, and negative, depending on the financial position of the organization.
A positive flow is formed from an equation in which revenue from assets prevails over expenses from liabilities. In other words, the property of the organization brings in more funds than is required for investments.
A negative cash flow is formed when significantly more cash is required to maintain the company's property than is actually received.
A zero cash flow is the equality of income from assets and expenses from liabilities.
Determining the payment indicator helps to assess the financial condition of the organization and predict its development. In connection with all of the above, it can be said that before purchasing liabilities, it is important to assess the level of required investments and compare it with the volume of available assets. This is the basis of financial literacy, which will help organize a successful business. Next, we will consider the differences between different types of enrichment.
This type of income is understood as the usual understanding of a person's labor employment. Active revenue is a standard salary for work. The scheme "completed the task - received a reward" operates. It applies to the official way of making a profit and, for example, freelance and part-time jobs. To receive a linear income, you need to make a certain effort. As soon as you stop performing the required functionality, the income stops.
Let's consider the main advantages of this type of income:
- ease and clarity of ways to achieve
- a mandatory condition is the constant fulfillment of your tasks
Let's consider the main disadvantages of this type of income:
- instant receipt after completing the tasks set by the customer / employer
- time and labor costsfinancial dependence on the customer / employer
Most people working under an employment contract in organizations or providing their services in the "freelance" format receive linear income daily. However, this is not the only way to increase your budget. The indisputable advantage of linear income is instant remuneration. Worked the required volume - received the desired reward.
Active income is the income you earn by directly applying your efforts, time, and skills. Simply put, it is the money you earn by working.
Examples of active income:
Wages: This is the most common type of active income. You work for an employer, perform your duties, and receive a fixed amount for it.
Freelancing or self-employment income: If you work for yourself, providing services (for example, a designer, copywriter, consultant), your income directly depends on the quantity and quality of the work performed.
Income from your own business (if you are actively involved in its management): If you own a business, but are also involved in its day-to-day operations, your income from that business is active income.
Fees for speaking, consulting, teaching: Any activity that requires your personal presence and expertise generates active income.
The key feature of active income: it stops as soon as you stop working. If you get sick, go on vacation, or lose your job, your active income will stop. This makes it less stable in the long run.
Passive income is money that you receive regularly, without requiring your constant and active participation. It is income that is generated by assets that you have acquired or created earlier.
Examples of passive income:
Rental income from real estate: You own an apartment or house, rent it out, and receive a monthly payment. Your participation is limited to finding tenants and solving technical issues.
Dividends from shares: If you own shares in companies that pay dividends, you receive a portion of the company's profits in proportion to the number of shares you own.
Interest on deposits and bonds: The money you deposit in a bank or buy bonds brings you interest income.
Royalties from intellectual property: If you have written a book, created music, developed software, or invented something, you can earn royalties for every use of your creation.
Income from online courses or digital products: Once you create a course or ebook, you can sell it over and over again, earning income without constantly updating the content.
Income from affiliate programs: You recommend products or services from other companies and earn a percentage of every sale made through your link.
The key feature of passive income is that it continues to come in even if you are not working. This gives you the financial freedom to do what you really love or just relax.
We have considered the features, advantages and disadvantages of active and passive income. It is not necessary to stop at one, it is possible to receive a small passive income in addition to the main one and vice versa. Depending on the goals and needs of each person. Linear income is stability and regularity, supported by dependence on the financial condition of the organization you work for. Passive revenue is the path to independence and capital increase in the long term. Competent investments in profitable projects improve a person's standard of living and allow him to do what he likes most, without relying on debt obligations. In other words, passive income guarantees financial well-being.
After reading the article, many things became clear in investment matters, and most importantly, now I can correct my mistakes in financial management. Thanks for the details and explanations.
Thank you for the explanations on finances and strengthening the business. Much in this area remained unclear, but I hope that the authors will continue to delight us with useful articles.
I found the article very interesting and informative. I want more articles like this on finance and investing, because this knowledge greatly affects the quality of life and work.