What is the difference Between Active or Passive income

What is active and passive income? And why is it is important to understand them well?

Active income: If a person is directly involved and direct services are performed to earn income e.g. Wages, tips, salaries etc.

Passive income: If a person is earning income without any active involvement e.g. Income from rental properties, limited partnerships, royalties, dividends, and investments.

(* Income from royalties and dividends is sometimes referred to ad portfolio income.)

To achieve financial freedom you have to increase your passive and active income. To become financially free, Most People gradually increase their passive income and decrease their dependence on active income.