Active income and Passive income

You must’ve heard about Active Income and Passive Income. Especially when reading quotes from investors. Most of them put a lot of emphasis on Passive Income. So let’s understand what it means and why they say that.

Active Income

Active income is earned in exchange of service performed by a person. In other words, you earn active income by performing a job. You are directly involved in this case as you also have to give your time.

Examples of active income:

Magic of Compound Interest

In the last post, we understood the concept behind Simple interest and Compound interest.

In case you haven’t read it: How to calculate Simple interest and Compound Interest?

In this post we will see what wonders compound interest can do.

Let’s first start by comparing the money you have in i) Simple interest ii) Compound interest

Let’s say you put $20000 at 10% interest rate for 25 years.

Below is the graph showing returns through simple interest and compound interest.

How to calculate Simple interest and Compound interest?

In school, we are taught simple interest and compound interest but few of us apply it in the real life. In this post, you will learn how to calculate simple interest and compound interest.

Simple interest

Most of us know the formula for simple interest.

That is I = (P*R*N)/100

Basic terms : Part-2

In the last post, we talked about Assets, Liability, Net worth and Law of supply and demand.

In case you haven’t read it, here it is: Basic terms : Part-1

In this post we will discuss Inflation, Deflation & Time value of money.

Inflation

Have you ever heard people complaining about increased price of goods? That increased price is nothing but Inflation. You must have experienced that the same thing which used to cost $XX previous year costs more than that now.

Basic terms : Part-1

When you want to make a building, it’s necessary to have solid base to bear the load otherwise the building won’t be able to stand for long. Likewise, you need to have sound basic knowledge of some terms before you jump into such a vast subject like economics. You can see some people who try to sound smart by pronouncing some fancy words like Stock, Net-worth, Assets and blah-blah. But when you ask them the meaning of those words, many few of them are able to answer. So to save yourself from such embarrassment, first learn the basic terms and you will go swiftly in the journey of financial literacy.

In this article, we will start with the basics which you will use every now and then.

Let’s go then…

Assets

Why is being financially literate important?

Before starting, let me ask you first what is financial literacy?

According to Google, ‘Financial literacy is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.’

But if I explain you in simple terms, ‘Financial literacy is nothing but knowing how money works and thereby knowing how to make more money and manage it the best way possible.’

Now, let’s come to the point.

Why is financial literacy important?