3 Different Types of Income You Should Know

Do you know that there are three types of income? Earned income, capital gains income, and passive income. In our society, we have a perception that getting a high-paying job is the only way of getting prosperous. And the only way to earn an income is to work for an employer and receive a paycheck, the more and faster person receives it, the easier to get rich.

We call this is a type of income as “earned income.” This is a type of income that you actively earn by doing work for someone else. Earned income is not the only way to earn money nor the best way to reach financial freedom. In this article, we will introduce three different types of income that you can use to build wealth.

1. Earned Income

The first type of income is the most common income. Earned income is the income that you receive in exchange for doing work for someone else. When you start your financial journey for the first time, this is the only type of income that you will be able to earn. This type of income also including wages and salary. Wages is an income from a job where you are paid an hourly fee to perform specific activities. You earn more money if you work more hours. While salary is an income earned through employment. Your annual income is normally determined by a contract and paid weekly or monthly. Typically, the payment is consistent, and you will not be compensated for additional hours worked.

Examples:

– Working as a salaried employee at organization;

– Doing an hourly consultant for clients/organization

2. Capital Gains Income

This is the type of income that you receive from selling an asset or investment for more than the amount you paid for it, we also call it “portfolio income”. Investments, dividends, interest, and capital gains all contribute to portfolio income.

Examples:

– The most common example of capital gains income can be buying a stock for a certain price and selling it for a higher price later.

3. Passive Income

Passive income is money that would keep coming in even if you didn’t do anything. This is the type of income in which you get earnings from a rental property, limited partnership, or other enterprises that require no work on your part. When you are at higher points of financial freedom, this is the channel of income you should definitely consider.

Examples:

– Property rentals

– REITs investment: A REIT is a (real estate investment trust) is a company that owns income-producing properties.

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