In here we share with you 4 types of income.
Money is the foundation of nearly anything that we want to do in life. Most of us are taught that if we want to have a good life that we have to go to college, get a practical degree, and work until we’re 65, Is that correct?
We’re taught to budget and to save for retirement, essentially most traditional money advice teach us to be money managers and to work for someone else. What if there was another way to live and earn money? What if there was a way for you to actually take more control of your money and your life? We want to break down the four different types of income.
Table of Contents
- Active Income (Types of Income)
- Investment Income (Types of Income)
- Passive Income (Types of Income)
- Inherited Income (Types of Income)
Active Income (Types of Income)
Active income is defined as salary earned from specific duties or services rendered according to an agreed task, within a specified time frame.
Examples of active income are salaries, tips, fees, commissions, and allowances from the companies you provide services to. If you’re working for a person or a company–be it manual labor, office work, or home-based service–you earn active income. You can even be working for yourself, which is called being self-employed.
Active income earners are also either full-time, part-time, freelancing, or contractual workers. It is the most common type, if not the only type of income for most Filipino households.
Payment for active income earners happens every two weeks (colloquially called “kinsenas” or paid every 14 to 15 days). Some do get paid daily, weekly, once every month, or paid per project.
The Pros Of Active Income
There are three main benefits to active income that make it worth putting more effort towards, including:
- You get an instant return on your effort (or every two weeks or so from your paycheck).
- Income is fairly stable.
- You can use the income you get immediately for other ventures.
The Cons Of Active Income
The downsides of active income largely stem from the fact that people prefer the idea of making money without lifting a finger:
- You only have limited hours and energy in the day.
- Salaries have a ceiling.
- As you get older, active income becomes less appealing.
Investment Income (Types of Income)
Investment income is money received in interest payments, dividends, capital gains realized with the sale of stock or other assets, and any additional profit made through an investment vehicle.
Interest earned on bank accounts, dividends received from stock owned by mutual fund holdings, and the profits on the sale of gold coins are all considered investment income.
Income from long-term investments undergoes different—and often preferential—tax treatment, which varies by country and locality.
Investment income refers solely to the financial gains above the original cost of the investment.
The form the income takes, such as interest or dividend payments, is irrelevant to it being considered investment income so long as the income is generated from a previous investment.
Additionally, investment income may be received as a lump sum or in regular interest installments paid out over time.
The Pros Of Investment Income
There are three main benefits to investment income that make it worth putting more effort towards, including:
- You have ability to customize to your needs
- You will able to outpace inflation
- This could provide you a regular income
The Cons Of Investment Income
There is a main downside to investment income that make it worse putting more effort towards,
- High risk, Without proper knowledge you can lose your money.
Passive Income (Types of Income)
Passive income is any money earned in a manner that does not require too much effort. There are several passive income generating ideas that require a lot of work, to begin with, like developing a blog or leasing property, but eventually, they earn money even when the owner is asleep.
Personal income is the greatest wealth generating tool – something that requires an individual’s active participation. Thus, even if an individual has a full-time job, he or she would welcome additional income without necessarily having to sweat for it.
Developing a way to generate passive income provides many benefits. With the additional income, an individual is able to expand the wealth-building base so that it is easy to take early retirement.
Additionally, passive income is a backup plan in case the person loses their day job and offers an alternative in case a retiree outlives a retirement plan.
Passive income doesn’t guarantee immense wealth overnight. Therefore, an individual shouldn’t expect to get rich so soon. However, steady and gainful passive income opportunities can cause a person to amass income over a long period.
It means a few thousand dollars to hundreds more based on the income stream at hand.
Pros Of Passive Income
Even though the word “passive” sounds unappealing in other contexts, in terms of income, there are many reasons you should feel excited about it. The three main benefits of establishing sources of passive income include:
- It can freeing up your time
- This is a great way to improved your financial security
- This method has more control over your work-life
Cons Of Passive Income
- Less security. This may be debatable since many people believe they’re in total control as passive income earners. But stock markets crash, and real estate markets collapse. Passive income isn’t guaranteed.
- Going solo can be lonely. Many people that earn income passively have limited interaction with others. They’re frequently alone in front of a screen watching news and markets so they can stay on course.
- No benefits. You have to find and buy your own insurance, fund your own retirement, and pay the full Social Security due on your earnings
Inherited Income (Types of Income)
An inheritance is a financial term describing the assets passed down to individuals after someone dies. Most inheritances consist of cash that’s parked in a bank account but may contain stocks, bonds, cars, jewelry, automobiles, art, antiques, real estate, and other tangible assets.
It’s really important to understand how money works and the different ways we can get money into our lives. While some of these avenues may not be for you, the point is that the options are there, and sure they may take awhile to work toward to but the rewards can be phenomenal when implemented correctly.