Updated on March 27, 2007
What’s your income?
I mean, what kind of income do you get every month? We know from Rich Dad, Poor Dad and Investopedia that there are 3 kinds of income.
Effort need not be equal to income. Come on, you know the really wealthy can go to the mall or play golf or sleep in anytime they like. Break free and learn the truth about income.
The first type is what most of our hardworking parents push us to attain. Itâ€™s what weâ€™ve seen them get – and it’s utterly ironic that it’s not going to bring you financial independence.
Active income/Earned income/Compensation income
Earned income comes from service you render. It comes in the forms of salaries, wages, tips, fees, commissions, income from your business (where youâ€™re the janitor, operator, manager, accountant, salesman, etc). If you donâ€™t go to work, you get NOTHING.Employees, freelancers/self-employed, professionals, work for compensation income.
â€œBut hey! I get benefits! I have a special medical card and I have vacation leavesâ€¦â€ Donâ€™t you sometimes wish that they would convert those extra benefits to cash instead â€“ then again that would mean higher tax. Those benefits can be substantial indeed â€“ so surely, you donâ€™t think you donâ€™t have to earn them? You have to show up at work anyway to earn your salary and to get that free doctorâ€™s check-up (which you canâ€™t find time for!). Doesnâ€™t the sack of rice make it harder for you to quit (easier for them to have you stay)?
Do you have a plan B?
A lot of the people I know (yes, friends) say theyâ€™re too busy or theyâ€™re too tired from work or school. Itâ€™s TERRIBLE that they donâ€™t want to open their eyes to the 2 other types of income. They say they want to start a business someday but arenâ€™t doing anything about it now. They wonâ€™t accept the fact that they need a Plan B.
Now we’ve started hearing about the other 2 types of income but most don’t know how to get started. (Congratulations for wanting to! That gets you near the first step!) These next 2 types are what will make you wealthy and financially independent – not your slaving away 60-80 hours a week at your job.
Income from investments, including dividends, interest, royalties, capital gains.
How can you participate? Savings, trading in stocks, bonds, high-yield investment programs, playing in real estate, and any form of buy low-sell high are some ways.
Nicola says downline income in network marketing falls under portfolio income.
Larry Gamboa, author of â€œThink Rich, Pinoyâ€, buys foreclosed properties and repackages them as rent-to-own units. This mode would still be portfolio income for the real estate investor who also acts as property manager, while itâ€™s passive for the investor who just sits and has the money come in with zero effort.
Software or web applications where you personally have to provide technical support or any after-sales or ongoing service is still portfolio income. When you’re able to let someone else do this and the cash flow still streams into your pockets, you’ve just created some passive income for yourself!
Iâ€™m very interested in this because I know the terms in theory and itâ€™s usually where you get enough money for #3.
Finally, the income that will set you free!
********* Drumroll please **********
Income from rental property, limited partnership, or other businesses where you donâ€™t have to do anything! You earn doing nothing! Youâ€™re on the fast track baby!
This deserves a separate post so come back, okay? In the meantime, you may want to start generating portfolio income by trading in stocks or network marketing.
Portfolio and passive income are generated by assets – NOT EFFORT. Isn’t it funny how we were brought up and how we are expected to slave everyday when it doesn’t guarantee #2 and #3.
Want to get started on #2 and #3? Very briefly: visit my site often, start saving, read Rich Dad, Poor Dad, play Cashflow 101, and drop me a line.
If youâ€™re already getting income streams from #2 and #3, please drop me a line at or leave a comment. I would very much like to learn from you and have my readers learn as well.
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