Society teaches us this formula that we have to go to school, study hard, get internships, finish a practical degree or an in-demand trade and then we’ll have a great career for life. Then if you work hard and save money for retirement you will be able to retire, enjoy your golden years, never worry about money again and ride off into the sunset. However there is a lot about money that society doesn’t teach most people.
There are Three Types of Incomes
Active Income: If you work you get paid, if you don’t work then you don’t get paid. This is the model that most people follow for earning money. It relies on trading time, energy, and abilities for money.
It doesn’t matter if you’re a fast food worker, receptionist, accountant, doctor, software developer, engineer, lawyer, etc. We all have 168 hours a week and there is a cap for how much money we can earn this way.
You can earn a lot of money with active income, but unless you have a high-earning salary then it’s very difficult to become financially comfortable or wealthy on just one active income, and if you have one income it means you are very dependent on it.
What if there was a different way of thinking about money? What if money worked hard for you instead of you always working hard for your money?
Portfolio Income: Portfolio income is income from investments such as dividends, capital gains, etc. Sometimes this is called investment income, generally the idea is the same.
This is why a lot of people love investment or portfolio income, money works hard for them day and night, whether they’re asleep or awake. It’s much better to have several streams of income instead of one.
However don’t try to do too much at once in the beginning. Usually once people master one income stream then they slowly add other income streams as their time, money, and investments allow.
Passive income: Passive income is not passive in the beginning. You have to do a lot of work before you have passive income. Real estate investments, royalties or having a digital business is often considered passive income. With passive income you may have to intervene now and then to keep things relevant.
A lot of people who are able to get passive income going actually love it. It’s a fantastic way to have money come into your life. For more help on passive income, you need to visit Smart Passive Income run by Pat Flynn. He’s really good at helping people start earning passive income.
Inherited income: Sometimes people consider inherited income like trust funds a type of income. Not everyone has this possibility in their life, I did want to let you all know about it, however this doesn’t apply to myself or most people out there, so generally for most people there are basically three types of income.
Passive income & portfolio income are often taxed better than active income.
You Need Assets to be Wealthy
What are assets? Generally it can be any business, real estate, highly valued art, investments, etc. And to be wealthy you need assets, that’s why learning about investing, business, real estate is smart.
In order to build wealth your assets have to be worth more than any liabilities (any form of debt such as credit card debt, student loans, personal loans, etc.)
Your net worth matters more than your monthly budget. Your net worth counts your assets against your liabilities. Your net worth is a measure of how financially comfortable you are.
Let’s look at the most common assets people own.
Generally when people talk about investing they mean investing in the stock market. Over time your investments will grow, and you will have portfolio income. This is the most common way to build wealth, and how many people became wealthy.
Any business, whether it’s a brick-and-mortar business, or an online business, can be considered an asset. A business can earn both active and passive income.
This can be highly valued art, jewelry, etc. Some people consider assets as property but I would be careful with that assumption because cars depreciate in value. The property you own doesn’t necessarily give you an income. You only get cash for it once you sell it.
Real estate is often considered an asset. It can be a rental home or an apartment complex, basically any property that you can rent out. Often people buy a second home, pay it off, and rent it out to well-screened tenants. Be cautious considering your personal home as an asset. Your personal home is actually not meant to make an income. Many money experts consider a personal home a liability and not an asset.
Money Magnifies Who You Are
Money magnifies and reflects who you are. If you’re a good person when you’re broke then you’ll probably be a good person when you come into money. If you’re a bad person when you’re broke then you’ll be a bad person when you have a lot of money.
Sometimes people have a blind eye when it comes to the wealthy. They think all wealthy people are good or that all wealthy people are bad. The truth is that not all wealthy people are good and not all wealthy people are bad. You have to take people as individuals no matter what socioeconomic background they come from.
No One Cares About Your Money
No one cares about your money as much as you do. This is why I always encourage people to do their own homework. Don’t follow anyone’s advice blindly. Not even if they’re an authority like a financial adviser or an accountant.
Once you are out of college and working in the real world, your parents will start caring more about their finances than yours. If they have to choose between paying your bills and their own, they can (and should) choose to pay their own bills first. Not all parents have the means to help out their adult children.
You Have a Money Mindset
A money mindset (sometimes called money blueprint) is how we generally think about money. Some people grew up in households where they spoke negatively of wealth and the wealthy, ideas which may persist well into adulthood.
In other families money is considered a neutral resource – a tool like a hammer or a screwdriver to achieve certain ends such as sending their kids to college, saving up for retirement, etc.
If you hold certain views about money you will act out on them. If you think money is negative then you will push away opportunities that would help you earn more money. If you think money is a tool, then you will pursue the opportunities you want to earn more.
Learning about money can seem overwhelming at first, but it doesn’t have to be. Once you start learning about money and applying the knowledge into your life you can build a better future for yourself.