There are three types of income. No matter how you earn money; it will fall into one of three buckets. Below I will talk about the three buckets and how each of them can impact you. In order to achieve wealth; you will need income distributed over the three buckets in some capacity; as it does not necessarily need to be an even spread.
I will start with Linear since it is what most people know; and as far as I’m concerned; it’s what many people only know, which I find disturbing and unacceptable. Linear Income is when you are trading time for dollars. The common promotion of wages is $X/Hour or $Y/Job. You are literally trading hours of your life in exchange for dollars. This is the most common method of income and this needs to stop. If you ever want to become financially fit you need to start looking for sources of money outside of the linear income scope. Stop trading your time for dollars; you only get one life; stop wasting in on helping someone else get rich.
Passive income is currently my go to and I enjoy it very much. My current total in Passive Income is $3,500/year. It may not sound like much, but it’s steadily and consistently growing. In all fairness; I may be buying a new house in the near future, so this amount may be cut in half. That is the trouble with passive income though; once you take the capital out to redirect it somewhere else; the passive income stops flowing. It’s both a blessing and curse with passive income, but like I said earlier, I enjoy it. My favorite form of passive income is dividends from stocks and bond interest. I invest in high quality companies with a history of steady dividend payments and a history of raising dividends each year. Although the passive route can take some time; it is the ultimate symbol of financial independence when you have cash deposited into your account for doing nothing more than putting money at risk.
Now for the least known of the income pyramid; Leveraged. Leveraged income can come in many forms, such as royalties; where you write a book or star in a movie and get paid for it repetitively; every time someone buys the book or airs the movie. Another form of leveraged income is managing a business; or simply outsourcing a project. Let’s say you are teacher with an ABA Certification. A parent approaches you and offers you $3,000 for 30 minutes a week of ABA Services for two months over the summer. You can turn this opportunity into leveraged income by outsourcing the job to another ABA therapist for $2,500. Voila; you just collected $500 and did absolutely nothing except broker the deal. Or, as many accountants that I know; offer a fee to prepare tax returns and then outsource it to a back end accounting firm. The accountant makes takes a fee from the client and then pays someone else to do the work and the accountant keeps the difference. This is leveraging someone else’s time to accomplish value propositions.
The three types of income need to be understood, but what you really need to get out of this is that until you learn how to make money while you are sleeping; you will never truly be financially free.