Part of learning to become financially free is to begin to understand that there are three different types of income. They are: capital gains, passive income, and earned income. They are the three types of ways to make money, and are very easy to understand.
Capital Gains - When you buy a stock, and sell it for a higher price, you have made a capital gain. If you buy a house and then later sell it for a profit, you have made a capital gain. If you buy an antique at a low price and then sell it for a nice profit, you have made a capital gain. Capital gains are not passive income. They are a one-time payment that you receive from an investment because your investment has increased in value. Investing for Capital Gains is great because you can keep your money moving, instead of just letting it sit in the bank. The government loves to tax capital gains, especially if you bought and sold your investment in less than one year. Lets say you buy a stock, and the stock doubles in price during the week so you decide to sell it. You've made a nice capital gain, but the government could take as much as 35% on that capital gain, depending where you are in the income-tax bracket. If you hold onto your investment for a year or more, the government rewards you with a more favorable capital gains tax rate.
Passive Income - Passive income is payments that you receive from the assets you have created. These payments usually come monthly, and require little or no work for you to receive them. Some types of assets that produce passive income are rental properties, dividend stocks, and businesses. Assets that produce passive income continue to do so until the asset is liquidated (sold). Passive income is what makes a person rich. If a person has more than enough passive income to cover his or her expenses, that person is rich.
Earned Income - Earned income is the primary source of income for most American's today. Any type of job that pays an hourly wage, pays earned income. People who rely only on earned income, pay the most taxes. Federal, State, Unemployment, Social Security, and Medicare taxes are all deducted from a persons paycheck. With passive income and capital gains, the types of taxes you pay (if you have to pay any at all) depend on your investment. Earned income is not necessarily a bad thing. Having a job or career is a great way to earn the capital required in order to create assets.
Almost everyone who starts his or her own journey to financial freedom begins with earned income. Relying solely on earned income should be temporary. In America today, many people rely on earned income alone, and saving most their earned income for many years until they retire. The path to financial freedom requires making the transition from relying on earned income, to passive income
Michael Press is an investor and teenage entrepreneur. He currently owns and operates passiveincomeinfo.com, a free website with articles about how to build wealth.
no-contract cleaning service Glenview ..No matter what markets you serve; what products you sell;... Read More
You have probably heard other people say that "Money isn't... Read More
We talked recently about the wealth formula:Spend less than you... Read More
Why is it that the older and richer people become,... Read More
"Join our program and retire in 3 months..." yeah, right.We... Read More
SCENE 1: Pharaoh has just woken up from a very... Read More
The business of banking has changed dramatically over the last... Read More
I counsel a LOT of people about money. I see... Read More
This is a true story about a homeless man from... Read More
Although there are advantages to selling other people`s products and... Read More
The vast majority of working people are in debt. The... Read More
Now is a great time to make it a habit... Read More
Time and time again entrepreneurs are losing out on getting... Read More
Six out of six people who were asked to list... Read More
Most accountants, financial planners and wealth-building experts agree that there... Read More
Self-Made Millionaires are not smarter or better than you. They... Read More
Whether an established conglomerate or a fledgling company, a business... Read More
In today's unpredictable global economy, you obviously never know what... Read More
I recently came across startling figures about the average American's... Read More
How Much Money Will I Need to Earn to Retire?This... Read More
Results from a new tool developed by UK based firm,... Read More
"My people are destroyed for lack of knowledge." Hosea 4:6... Read More
Articles on 'How to make money' come a dime-a-dozen. How... Read More
Planning for the undesired, accidents and possible unknowns in life.... Read More
What if I were to tell you that almost everything... Read More
house cleaning company Glencoe ..There once was a hawk, ferocious and swift. He was... Read More
Is the ghost of "Money Past" haunting you? Do you... Read More
As you know, we're now well and truly in theInformation... Read More
Imagine being able to steal untold millions of dollars in... Read More
Ever think about how eating all those fast food meals... Read More
Have you any idea how many people search Google every... Read More
Like I said, If you are poor and on social... Read More
Most people want to get to the end of their... Read More
Simple tips on saving can very often make quite a... Read More
When Building Wealth by Russ Whitney was released a few... Read More
Here are some thoughts about the morphing of thought and... Read More
You may think you have to be an entrepreneur to... Read More
There are plenty of people who are in love with... Read More
The rewarding of high compensation packages to top executives who... Read More
1. Pay off high-cost debt. The best investment most borrowers... Read More
Many people assume that the offshore world is accessible only... Read More
What is your attitude towards having wealth? Do you believe... Read More
As many people have observed, "Success leaves clues." If you... Read More
U.S. Supreme Justice Louis D. Brandeis"I live in Alexandria Virginia.... Read More
You have $100 in your bank account, your rent is... Read More
Let me ask you a very simple question. Do you... Read More
Steve Martin once delivered an opening monologue for Saturday Night... Read More
From tender age, we were exposed to myths about money... Read More
This retirement account is so new and unique that you... Read More
Parents must give serious thought to protecting their family through... Read More
Wealth Building |