For most people, if not all, making money is at the top of their list of priorities in life. As the
saying goes, money makes the world go ‘round. Lack of it can cause stress and anxiety to
oneself and his family. Thus, it is important to know the different ways of earning income.
First is earned income. It is the money you earn for the amount of time spent working. There
are also jobs that are output based, which means there is a fixed price paid for the output
provided. This is an active type of income, which means if you do not work, you will not be paid. A normal 9-5 job in an office is an example of earned income paid on an hourly basis. An engineer being paid at a contract price for constructing a house is an example of a
project-based or output-based earned income.
Profit income, or also referred to as business income, is income derived from selling products you make at a higher price compared to how much it costs you to make it. This price difference is your profit as a business owner. To earn high profits, you need to identify a product or service that people would like to buy. You also need to keep your costs down in manufacturing and marketing the product or the service. Profit income may be an active or passive type of income, depending on how involved you are in running your business.
Passive income is income that is not directly tied to the amount of time spent working nor your output. It comes from resources that you own that generate income for you. For example, you can buy a home and have it rented out in AirBnB or renting it out to long-term tenants. The rent they pay is passive income, as you don’t need to be constantly involved in earning money. Other examples of passive income are receiving a royalty for products that you have established, or putting your money in the bank and letting it generate interest.
Another way of earning an income is a portfolio or investment income. This is income derived from selling an investment at a much higher price compared to when you originally paid for it. An example of this is earning dividend income. If you are a shareholder of a company, the dividend earnings are given at the end of the financial year. Or if you earn a real estate property and decide to sell it off, you earn capital gains, which is the result of an increase in the value of the property. Investing in stocks and bonds are also examples of investment income.
There are a lot of ways to earn income. Most people start with active sources of income and
save up so they can start building passive sources of income. Unfortunately, some people get stuck in their comfort zone and stay in their earned income. If you want to start building your wealth, you need to step out of your comfort zone, explore other sources of income, and let your money make money for you.
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