Financial security is a top priority for many, but how do you actually achieve it? The answer lies in understanding and cultivating streams of different types of income. Schools will not teach you this.
Traditionally, people rely on a single source of income, but the modern world offers a variety of options to build a more robust financial foundation.
Let’s explore the three main types of income and how they can work for you.
1. Earned Income: The Bread and Butter
This is the income most of us are familiar with. It is the steady paycheck you receive from working a traditional job. You can be either an employee working for someone else exchanging your time for money, or self-employed starting over everyday at zero. Earned income comes in two main forms:
- Salary: A fixed amount paid regularly, typically bi-weekly or monthly.
- Commission: Earning based on performance, a percentage of sales made or projects completed.
Earned income provides stability and is a great way to build a solid financial base.
2. Investment Income: Growing Your Money Over Time
Money works for you. Investment income is passive income generated by owning assets that appreciate in value or produce returns. Passive income is not dependent on your presence. Here are some ways to build investment income:
- Interest Income: Earned on lending money to others – savings accounts, bonds, and Certificates of Deposit (CDs).
- Dividend Income: Dividends are periodic payments made by companies to their shareholders.
- Capital Gains: Profits made from selling assets like stocks or real estate for more than you purchased them for (assets increasing in value).
Investment income takes time and effort to set up, but it offers the potential for long-term growth and financial freedom.
3. Business Income: High Risk, High Reward
Business income is the profit or loss generated by running your own business. Other people work for you. This can be anything from a local bakery to an online store. The potential for income is high, but so is the risk. Business owners need to be prepared for:
- Startup Costs: Funding required to launch and operate your business.
- Market Fluctuations: Changes in consumer demand or economic conditions that can impact your income.
While risky, business ownership offers the chance to be your own boss and build something truly valuable.
In summary, understanding these three main types of income empowers you to take control of your financial future.
Most people benefit from a combination of all three. Earned income provides stability, investments offer long-term growth, and businesses allow for high earning potential.
By strategically building these income streams, you can achieve financial security and reach your financial goals.
