This is a trick question.
When the average person is asked this question, they give you their job title:
- Account executive
- School teacher
- Customer service rep
The list is endless, but what they don’t realize is they are all giving the exact same answer.
Did you know there are three basic types of income? Or put another way, three ways people make money?
- Earned Income
- Portfolio Income
- Passive Income
Earned income. If you have a job, that’s earned income. This is the most popular answer, and an example of the responses as described above. For every hour worked, you are paid a wage: “a day’s work for a day’s pay.”
Most people are only familiar with earned income, but that’s just one part of the equation.
If we want to be wealthy and financially free, we MUST understand how to make money the other 2 ways, which means to create and generate portfolio and passive income.
Portfolio Income. This includes items such as dividends or interest received from stocks, bonds and mutual funds.
While there is generally a limit as to how much a person can make from earned income, portfolio Income is limitless. For example, if you’re paid by hour, you can only work so many hours per day or week. However, with portfolio Income, there is no limit to how much your investments could increase in value.
On the flip side, those investments could lose value as well, which can make them risky.
Passive income. Passive income is almost the opposite of earned income, because it’s money you can make while you’re asleep.
These are monies received from items such as real estate rental property, royalties, and revenue from products you own or sell.
Passive income is often considered as the most lucrative of the 3 because the right passive income investment could generate income for decades:
How long can rental property generate monthly rent? How long can a popular book, movie, or song make the creator money?
Passive income is also the hardest to generate as it’s the most difficult to establish, that is, if you’re used to receiving money via earned income. This is because it can take time for passive income to be created.
In other words, we can work for weeks, months, or even YEARS before we get paid off of our passive income investments.
The average millionaire has 7 streams of income. That does NOT mean 7 jobs, or 7 sources of EARNED income. In actuality, they often have 6 -7 sources of PORTFOLIO and PASSIVE income that allows them to make money while they sleep.
Here’s a short video where I discuss each a bit more:
This isn’t discussed in schools, but if you’re tired of working a 9-5 and looking for a better way, learning about these other income streams is a must. As discussed in the video, instead of spending all your hard EARNED income on goods and products that decrease in value, slowly accumulate assets that not only increase in value, but can generate revenue for you as well.
Doing so can take you one step closer to financial freedom.
It’s critical we stop relying on earned income to meet our financial needs. It’s never too early (or too late) to become financially fit. Pick up a copy of my books Planting Seeds: The Children’s Guide to Entrepreneurship, Invest For Success: Millionaire Wealth Strategies Not Taught in School, and Readi Set Go! A Simple Guide to Establishing a Successful Small Business.