3 Types of Income

3 Types of Income

There are three types of income: portfolio, earned, and passive. Knowing the difference is a huge step towards learning better money management and business practices. The trick is to learn to balance different incomes in an effort to get the most out each one. This balance is the key that millionaires use to create wealth. It’s also the way to control income.

Portfolio Income

Portfolio income is money earned through investments like stocks, bonds, and other forms of interest. Some examples of portfolio income include:

- 401K Plans

- Money Market

- CDs

Although no portfolio income opportunities are mentioned in this book, it’s nice to know the difference between this income type versus others. In fact, you might decide to invest some of your money into a portfolio. I would definitely recommend everyone have some form of retirement account: 401k or IRA. There are other investment tricks that can lead to minor increases in income. One is to use the money market to guarantee a small gain on your money without any risks.

Earned Income

This is the most common form on income. Compensation for employment (hourly wage or salary jobs) is quite common. Most people earn most of their income through their life. However, no one gets wealthy from earned income alone. Even those who just toss money into a savings account are mixing in another type of income (portfolio income due to interest gained through a savings account) in order to add security to their

financial lives. Becoming dependent on earned income alone can lead to financial disaster.

Great money management practices include plans that allow one to transform earned income into other opportunities – whether that other income is generated through investments or simple savings accounts. Even an individual with a 401k is generating a long-term second type of income through their earned income.

Examples of earned income are:

- Hourly Wage Jobs

- Salary Jobs

- Freelancing

Passive Income

Like portfolio income, passive income doesn’t depend on regular activities. Every millionaire generates passive income in one form or another. Business owners are among the most common at drawing passive income. They invested their time to start their business, hired individuals to perform tasks, and marketed their business. After that, they sit back and watch as money is deposited into their bank accounts on a regular basis. It doesn’t matter if they go on vacation or retire, their income will continue to passively flow into their account.

Passive income is what this book will focus on. If you want to be successful working from home, you will need to create passive income opportunities. Your goal should be to reinvest a portion of your earned income to fund opportunities for 

passive income. If you unlock passive income, you will unlock the door to financial freedom.

Some examples of passive income include:

- Owning a Business

- Book Royalties

- Affiliate Marketing (discussed later)

- Renting