Most people know about the 3 Different Types of Income, but very few know how to make no more than one – wage income. Find out why it’s a good idea to know about all three!
How Much Do You REALLY Know About Money & Finances?
There are many poor folks that do not engage in educating themselves about money, wealth and income. I am firmly convince that the way out of poverty is education. Surprisingly, very many highly professional and technical folks holding high-paying jobs can be, and in many cases are as financially-illiterate as their working-class poor counterparts. And no…
Don’t look for this type of education in your high school or college. You might get some of this education out of business courses, but it’s not top priority. You might get some of it from an economics course, but beware that the education you get might be stilted and even dated. Sure, you will get the basics, but if you really want great education on this topic, the best place to get it from are from those who work with it every day and is their lives – entrepreneurs
Your college education doesn’t come to you from entrepreneurs, but from employees. There’s a big difference in how such education will be delivered to you.
There are three types of income.
- Active – Earned income, Requires Face Time. You Work For Your Money.
- Portfolio – Capital Gain Income from Stocks, Bonds, 401K, etc. Involves Risk.
- Passive – Cashflow Income – Rent, Royalties, Your Money Works for You.
Earned income is the worst type you can have. This is all income that comes from a paycheck, including hourly and salary income. Pensions are also considered earned income and are taxable as any salary income is. What’s really bad about 401K (initially portfolio income) is that it is one of the highest taxed forms of income right up there with your normal taxable earned income. In most earned income, the earner has very little to no control on how their money, beyond take-home, gets used.
We are well aware of social security and medicaid taxes that get taken out before the earner even sees it. We also note that 401K gets taken out by the banking institutions that control it. There are other deductions that occur in earned income, done “for” the recipient, Very often, these types of transactions put many wage-earners into a budget deficit. It forces wage earners to pay themselves last.
Portfolio income isn’t as bad as as earned income, but it definitely has its drawbacks. 401K is a big joke! There is legislation being pushed to make 401K mandatory for all wage earners. So, like ObamaCare coming into the picture which makes health insurance mandatory, 401K is another vehicle disguised as government looking out for the consumer, but in reality, is government borrowing from Peter to pay Paul. All such programs are in this boat.
Portfolio income is something one must know about before delving into. While it does have its merit, it can be a very dangerous form of income to play with. It is very much like playing the lotto. Incidently, Lotto is NOT passive income like many believe it to be. The US government does not see it that way. Many people get into shares with such entities as Apple. While this empire is healthy and strong, its shares are reported to be stagnant. Why? Every man and his brother and his dog are into it.
Warren Buffet can provide you the best education you can get for this type of income.
On the one hand the US government considers royalties (income from the writing of books, software and other means of intellectual property) to be passive income, and yet it doesn’t. I’m still learning about these phases and the complications here.
Rent is considered passive income by far. It produces cash flow. This is why it’s better to retain real estate as a long-term asset and derive this passive income from it. Flipping real estate falls under earned income. Cash flow is better than capital gain.
Passive income is the lowest-taxed form of income. Some of it IS taxable and some of it isn’t. Earning income on the Internet, which is technically a form of passive income is not taxable in most cases. Some of it is taxable on the state levels (i.e. Connecticut and California.) Did you know you can begin right now, in baby steps, in getting your foot in the door beginning to earn passive income? Wealthy Affiliate teaches online business and is a highly-respected and the most renowned educational facility you will find on the Internet. Check out my blog over there for more information about this topic and about WA itself.
Why Does It Matter Which Income(s) You Have?
We have heard of the push by the Obama Administration to impose heavier taxation on the very wealthy. The problem is, who are the “very wealthy” talked about here?
It isn’t those who derive their income from passive sources. Money kept in a system to be reinvested enjoys the freedom from taxation. Money that is turned into assets or are reinvested into the ones they came from are in this class. So who is it? You might have guessed…
It’s the middle classes again! There are folks in the middle class, most notably the upper middle class that are very well-to-do and appear very wealthy, and in fact, some are. These are the folks being targeted – those in such positions with earned income. It’s the earned income and some portfolio incomes that are being more heavily taxed.
Money that isn’t fed back into the business and is used as income gets taxed. The one major difference between very wealthy folks in the upper middle classes and the truly wealthy are the classes of income they get and what they do with it. The very wealthy keep their money whereas the upper middle classes do not. As anyone in the middle classes, they are employed, receive paychecks. This isn’t the most important thing however. It’s how they manage their wealth. Few of these folks do not invest into assets. They dump their money into what they think are assets (their homes, automobiles and expensive toys that the very wealthy call “doodads” and therefore get extensively taxed on them. Not to mention, the higher your paycheck is, Uncle Sam treats that like any other earned income and whops you.
We think of our celebrities as part of the super-rich. This couldn’t be farther from the truth for many of these folks. Actors work for producers and receive paychecks. Sports players are the same way. They make massive incomes and are equally massively taxed. Now, it is true that some of these people get into true investment and acquire big businesses. This is when the tide turns. Many wealthy people have one foot in the earned income arena and the other in the investment/big business arena. Portfolio income is usually a shared commodity.
Another reason to think about passive income as a source to consider is that gold and silver fall under this type of income and to secure this type will help protect your wealth from the declining value of the US Dollar, and to keep it away from this source of funny money.
While the masses do all their dealings and play in the fiat currency phony money that is so elusive and fickle in its value, the very wealthy know how to protect their wealth and assets with the right kind of education, assets and money. For more information and some of the finest education you can find on how to manage your money and the pitfalls to avoid, check out the resources right here or click on the image below.
I also highly recommend any number of books from my library of top business educational book you could ever find!