– What types of income are there, and which one is the best?
By George C. Georgiou
To answer those questions, we need first to answer the fundamental question of what income is. Right?
So, income generally refers to the total amount of earnings coming from any source, which is received regularly over a set period of time.
To me, someone who was brought up and lived most of his life in a modern city, the word income is synonymous with the words freedom and happiness. I also believe that if you disagree with me on this is because you have always had them in your life.
What types of income are there?
There are many types of income, but overall, you can classify them all under four main categories; active (aka earned income), passive (aka making money while you sleep), portfolio (aka investment income), and other (aka ‘-‘[email protected] :-)).
Active or earned income:
It is the type of income that is earned in exchange for our time and effort; in other words, you are actively engaged in a service, and it makes no difference if you work for someone else or are self-employed.
Active income is the most prevalent way that people rely on this type of income to provide for themselves and their families.
It is the most prevalent one; it is the one that most people rely on to support themselves and their families. For the majority of people, active or earned income is like a tradition; it is what they have been taught and expected to do. There can be only one way, good old honest earned income, just like there can only be only one intelligent species in the entire creation, it is not possible for other extra-terrestrial beings to exist in this Universe that we live in; it’s just not possible…!!!
Sorry, I got carried away; I will probably not delete that comment sometime in the near future.
Some examples of active income would include any job that we do and get paid per hour, week, month, and so on, or when a service is concluded. Making tips and receiving bonuses and commissions as a result of your job is also considered earned or active income.
Passive income, aka making money while you sleep 🙂
It is the exact opposite of active income, meaning the type of income that we earn without having to spend any time or effort. Commonly, some form of initial investment, time, and effort is required to set things in motion, but after that, we simply enjoy our earnings coming in, and they usually tend to be recurrent.
Here are some examples of passive income: receiving monthly rent, royalties, interest on our deposit, alimony, social security, and receiving share dividends on stocks.
Portfolio or Investment Income
It is the type of income that is derived from dealing (selling, buying, keeping, swapping) with all kinds of investments, and the definition of investment is the purchase or acquisition of an asset for the purpose of selling it at some time in order to attain higher gains.
Some examples of portfolio income include purchasing a piece of land, stocks, bonds, mutual funds, or any other financial asset.
When you have sold something for more than what you have paid for it, the difference is called capital gain.
The last type of income is what I call other income!
Income from other sources!
‘Other’ is one of my favorite words; it is such a powerful word! When appropriately used, it covers you from all angles, nothing is left behind, and you simply can’t be accused of leaving something out of the equation!
Here are some examples of what other income could be: income from selling things e.g. cars, real estate, stamps, coins, antiques, inherited Income, earnings from Peer-to-Peer Lending, and so on.
Now that we have covered all types of income, it is time to announce the winner, which is none other than Passive Income.
You really must be crazy to think another type of income is the best. Passive income allows you to receive money:
– when you are not working
– when you are on holidays
– when you are sleeping
– when you are in the toilet taking a —-
For all these reasons and many more, which I will write about in another post, I consider Passive Income the King of all incomes!
Some final words
If you want to become rich fast, then you need to create multiple streams of income, in other words, diversify your income, and if you want to have more free time on your hands and enjoy your life to the max, then make sure that most of your income streams are of the passive kind!
©George C. Georgiou