The Three Types Of Income

Most people think that all income are actually the same. In fact some incomes are better than others. You might have to work hard or you might have to work less for the same income. You can work for the money or the money can work for you. This is completely different and although not taught in school, it’s one of the basis of financial education. We will explore the three types of income.

1. Ordinary earned income: This is what the majority of the population earns. Doctors, lawyers, engineers, clerks, etc. it’s what you hear on school all the time. You need good grades to get a good job. Although the easiest to achieve, it will give you the worst quality of life. First of all, employees are taxed at the highest rate. They have the least freedom, as the company tells you what time they are working, how long is their break time, how many days off they will get, etc. Basically as an employee, they are being owned by the company they work for.

2. Portfolio income: If you invest in the stock market, you are earning portfolio income. You enjoy more freedom, as it can be done from a computer from around the world. The problem is that it’s also taxed at a very high rate.

3. Passive income: The art of having the money work for you. By far the best possible income you can get. It requires very little work, usually at the beginning and then money keep coming in every month. It allows you to have multiple streams of income. It can’t possibly be done with ordinary income. Also passive income earners pay the least in taxes. Sometimes nothing at all.

Employees are looking for job security and a steady paycheck. This need for security is an obstable to freedom. But also it is an illusion. As an employee you are at the mercy of the boss. He decides when he needs you or not. He can fire you or even make you quit. The passive income earner as much more control over his income, which equals more security.