By Cam McLellan
We’ve previously talked about money flow, so today let’s talk about the different types of income, which are:
- Earned
- Trading
- Passive
So let’s have a look at these in a little more depth.
Earned Income
This one is pretty straight forward, its income you’ve earned working for someone aka wages. Also included in this category could be consultants, the self-employed, an employee or small business owner. Generally this money is secure and comes in on a regular basis, however there is some risk to this type of income – mainly loss of employment. This is why it’s important to have income in at least one of the other two types of income.
Trading Income
Trading income is buying and selling anything – for example shares, real estate, antiques, cars, property flipping. You may question that we have used property flipping as an example, but if you think about it, buying a property and flipping it is an income stream not an investment strategy. Anything that you are buying and then selling is trading, and this kind of income stream carries the most risk. Make sure you are very aware of the risks that come with trading, as unless you are doing this on-mass it is very difficult to make any real wealth.
Passive Income
Passive income is my favourite! This can be a business that you are not reliant to operating in, for example we have a number of businesses that we don’t need to turn up to or look at anything, but money comes in from them. The big one for me has always been growth property, as this will well and truly bring me a passive income. Al has a good example of a growth property that is providing a passive income. He brought this property 16 or 17 years ago for $120,000, it was recently valued at $420,000 and delivers a passive income of $400 per week in rent.
It’s important to understand what income you receive and what income you need to retire or have the choice about whether you want to turn up to work or not.
The final thought I’ll leave with you is whilst your earned income is a safety blanket, what myself and Al and a lot of other people we know have done, is use earned income to make some passive income. Once again we are talking about making a small sacrifice for prolonged gratification.
