|
The Three Different Types Of Income You Must Know
By: Rene Graeber
Let us take a look at the different types of income. They are:
1. Earned Income
obtained from working for someone or a company.
2. Passive Income
income generated from business.
3. Portfolio Income
income generated from investments in paper assets.
Let´s have a closer look:
Earned Income
Earned Income comes from having a job in a company or in someone else’s
business. You get paid for your time and services rendered. In the previous
section, we mentioned that workers work just hard enough not to get fired and
employers pay just enough for workers not to quit.
This indicates that the income an employee can generate from working for an
employer is limited.
There is the possibility that an employee may devote extra effort thinking the
employer will pay him/her more. It is a rare possibility particularly when
business is difficult, but possible.
And even if it happens, it is still limited. Whatever additional profit gained
by the employer as a result of the employee’s extra effort, the employer will
get the bigger “slice of the pie.” You are, in effect, making someone else rich
through your added effort.
Don’t think I’m discouraging this. It is a good act. I’m just stating a fact.
It’s likely that you will be telling yourself mentally: “Hey, that’s not fair.”
Fair or not, that’s the way life is, when you work for money.
If you are an employee, you get your money or paycheck after everything else. It
is earned income, less taxes and everything else deductible, before money
reaches your hand. And if ever the money reaches your hand, the next place it is
bound to go is to pay your bills. If the amount is not enough, you are bound to
borrow, which makes you debt-ridden if it accumulates.
Now, this is one big mistake. Don’t ever get debt-ridden. It is the quicksand to
poverty.
Earned Income is a safe way to generate an income. There is not much thinking to
do.
Except for a few high paying, high profile jobs, your work is mostly
concentrated on a few things where you keep repeating the same functions.
Unconsciously, this discourages creativity, so boredom starts to set in.
It is because of this boredom that getting to work every morning is such a drag
and you keep on looking forward to weekends, holidays, and vacations.
Unless you really love what you do without consideration to the income it
generates, or unless you are highly paid, or unless there is a lot more to learn
in your job, or unless financial security is of no importance to you, there is
no reason for you to stay long in the “rat race.” The earlier it is to get out
of the trap, the better chances you will attain financial success.
Passive Income
Passive income is generated from businesses. You can sell products or offer
services, or a combination thereof.
Examples are buying/selling real estate, trading merchandise as in wholesaling
and retailing, etc. In many cases, you need not be physically present in your
place of business. There are also small businesses like vending machines where
you hardly require an employee to visit those machines for refill (since you can
do it yourself).
You can also go with franchising; either be a franchiser or a franchisee. The
list is endless as long as you do what you love to do.
The beauty of going into your own business is that you work for you, not for
someone else. You enrich yourself, not someone else. Your time is disciplined
but more flexible because you can make your own schedule.
Another advantage of going into business, especially in your own corporation, is
that you earn and spend before tax is deducted, unlike being an employee where
you are taxed before you spend.
Portfolio Income
Portfolio income, just like passive income, is making money work for you.
Portfolio income is generated from paper assets like bonds, stock market,
certificate of deposits, and mutual funds. They are called paper assets because
literally, they are businesses that revolve on papers.
It is in portfolio income where financial knowledge is of vital importance. Your
intellect interacting with creativity can either unmake or make you rich.
Time for Action to make money work at home!
Now that you know the different types of income, it’s time to take some action!
Receiving earned income is fine, but your primary aim should be to get passive
and portfolio income as much as possible. Utilize earned income to its fullest
until you finally reach your goal of earning only passive and portfolio income.
About the Author:
It might be difficult for an "earned income person" in the "rat race" to move to
the "wealth express" of passive and portfolio income. You can find out more on
how to do that and acquire the mindset and behavior of the rich. Just visit Rene
Graebers website at: www.smart-ways-to-make-money.com
|
