Types Of Income

  Types Of Income |

- Linear Income
Linear income is when we trade time for money and is also known as earned income. The idea is that you put in hours to create value and you get paid in return for that value. The more value you can create in your hour the more valuable it is, the more you get paid.
When you run out of hours in the day, you have to create more value (upskill) to increase your income because you can't create more hours.
If you stop working you also stop earning and typically, as our mental and physical ability diminishes due to illness or age, our linear income also decreases. In other words, you are the Golden Goose, as long as you keep laying eggs you will earn a living and in many cases a very good living.
There are some benefits to linear income, there are no capital requirements to start earning, there is minimal risk and for some people, a job suits their temperament and lifestyle.
- Leveraged Income
Unlike linear income, in leveraged income, our time is detached from our earnings. We create businesses and leverage our money and/or the time of a pool of people who work for the business. The business builds products or offers services that can be sold many times over. The business not only generates us income but as the business grows it starts to create an enterprise value that can be extracted in multiple ways.
Other forms of leveraged income are writing a book that is written once but sold many times over or creating content that is read or viewed many times over. Write some software once and sell it again and again. Build a plugin or an app that can be sold hundreds of thousands of times, you get the idea.
Most people who manage to achieve leveraged income usually start with linear income and transition once they have some experience and money.
- Passive Income
I don't like the term passive income because I don't believe there is any such thing. Most "systems" pitched as passive income should really be called residual or recurring income.
As opposed to Linear and Leveraged income which are active, this form of income is called passive because, after the initial time and money investment, the income continues to be generated with very little or no input from us. Examples of passive income can be rental property; stock market investment (not trading); businesses that you may own but do not work for; term savings, royalties, etc Unless one is born into money, most of us need a linear or leveraged income so that we can create sustainable and residual income streams.
I am sure many will ask in the comment section which income is best and no doubt it is passive income but in the real world, it can take decades to generate enough linear or leveraged income to create the amount of passive income we need to retire.
Talking about retirement, before you all go bananas in the comment section about "Who wants to retire!"..."Why would you want to stop working!" Let me make it clear that whenever I use the word retirement, I don't mean stopping work completely. I mean having enough passive/residual/recurring income to cover the cost of your chosen lifestyle (whether £1k per month or £10k per month) and that you are not forced to do a job you do not enjoy or want to do. You can stop worrying about income and do whatever work you have a passion for, knowing you have enough income for the rest of your life.
Let me know if this was useful and if there is anything I should add.
Stay Blessed!

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