Tue, October 15, 2019

3 Types of Income

There are basically three different types of income:

  • Income you must earn by trading your own time for money (employee)
  • Income that you get by hiring others to gain money (employer)
  • Income that happens regardless of the owner (passive income)

Being an  employee is the first type of income, and the most common.  This type of income stream is dependent on the amount of time you work.  Remember time=money.  It is simple; if you don’t work you don’t get paid.  You get paid for every hour you put in.

Employees must be willing to spend time in order to earn money, and that is not necessarily bad.  The employee life is usually more strenuous work, but it sometimes has less stress than owning your own business.  However, if you get sick or injured and you cannot go to work you will usually not get paid.  It is just that simple.   

The second type of income is the employer income.  This type of income allows you usually make more than the standard employee.  The employer runs the business with all of the responsibility. The employer gets more money by multiplying his time: three employees, three times the amount of work! 

 The third and final type is passive income.  Passive income is dependent on your money working for you: stock  interest, investments, royalties, rental property, commissions, videos, online business, marketing, and advertising.  The idea of passive income is that you only have do contribute minimal work in order to gain money and hopefully, the money keeps coming in.  For example, bonds and stocks are a type of passive income because all you have to do is buy the stock and then just sit back and wait for the price of your stock to rise. (This is called the time value of a dollar) 

Other examples of passive income include:

  • Rental Property: I rent a house that I own and they pay me each month.  This can work with a go-cart, lawn mower, or any other thing someone wants to borrow for a period of time.
  • Royalties.  If you write a book, you get paid each time the book sells.  
  • Marketing:  If I am an advertising a doorknocker for the DoorKnocker Club and someone buys the doorknocker through my advertising, the company gives me a portion of the fees. 
  • Affiliate Marketing: Use awebsite or blog to get people to go to another site so they will buy something. 

Once the money starts rolling in, it keeps coming, hence the word passive. 

If you are an employeee, it might be wise to start a small business on the side so that you can gain more money and maybe even get a few tax breaks for owning a business.  You can even pay for your college tuition and other expenses if the business goes well.  It is good to have multiple forms of  income so that you never have to get into debt.

 “You don’t always have to work for money.  The purpose is to get your money working for you.”   –A quote from Lylizm

(article written by Naticus)

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1 Comment to “3 Types of Income”

  1. J-Rod says:

    Getting all three could be a nuisance but business owner and passive income are definitely appealing


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