Did you know there is actually more than one type of income?
And that it kind of matters… a lot.
I had no idea until I started learning about personal finance a few years ago.
I’m all about making more money lately, and I think one of the best things you can do for yourself is to know exactly how you want to make more money before you start. Otherwise, you’ll wander and might not like where you end up.
For example, if you value money as security, then money has the power to protect you. Money has the freedom, not you. You invest and make decisions so that you stack as much cash as possible, with the intent of retiring early and using the income from your investments to live off. This is more of the personal finance, financial independence space, that you read about on blogs, listen to on podcasts, and hear most about (the FIRE movement, if you’ve heard of it). It’s all about money as the end goal. And the way you accomplish this goal is by stacking cash.
Definition: Portfolio income is money you receive from selling an investment for more than what you paid for it (portfolio income is also referred to as capital gains).
Examples – trading assets, like stocks, bonds, and mutual funds.
Definition: Passive income is money generated from assets you own, where you are not actively working.
Examples – Rental income, business income (as long as it’s not earned based on time and effort), creating/selling intellectual property (e.g.: books).
EARNED (ACTIVE) INCOME
Definition: Earned income is money earned from working that requires your time. This is the income you receive from actively working. You work and you are paid for your work.
Examples – Salary; wages; bonuses; contract work.