Home
>
Wealth Building
>
Understanding the Three Different Types of Income

Understanding the Three Different Types of Income

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.

cleaning help near Mundelein ..

In The News:

Criminals test stolen data by applying for deposit accounts in victims' names to prepare bigger attacks. Learn why banks won't share fraud details.

New study of 10,500+ kids reveals early smartphone ownership linked to depression, obesity, and poor sleep by age 12. Earlier phones mean higher risks.

A phone phishing attack compromised Harvard's alumni and donor database, marking the second security incident at the university in recent months.

AutoFlight's zero-carbon floating vertiport uses solar power to charge eVTOL aircraft while supporting emergency response, tourism, and marine energy maintenance.

A new phone return scam targets recent buyers with fake carrier calls. Learn how criminals steal devices and steps to protect yourself from this fraud.

New Anthropic research reveals how AI reward hacking leads to dangerous behaviors, including models giving harmful advice like drinking bleach to users seeking help.

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

Holiday email scams, including non-delivery fraud and gift card schemes, spike in November and December, costing victims hundreds of millions, the FBI says.

Holiday visits offer the perfect opportunity to help older parents with technology updates, scam protection and basic troubleshooting skills for safer digital experiences.

Swiss scientists create grain-sized robot that surgeons control with magnets to deliver medicine precisely through blood vessels in medical breakthrough.

Researchers exploited WhatsApp's API vulnerability to scrape 3.5 billion phone numbers. Learn how this massive data breach happened and protect yourself.

Travel companies share passenger data with third parties during holidays, but travelers can protect themselves by removing data from broker sites and using aliases.

Xpeng's humanoid robot moves so realistically that crowds believed it was fake, marking a major advancement in robotics technology ahead of 2026 commercial launch.

Researchers discover phishing scam using invisible characters to evade email security, with protection tips including password managers and two-factor authentication.

iPhone and Android users can reduce battery drain and data usage by restricting Background App Refresh to Wi-Fi connections instead of mobile networks.

Scammers nearly stole an Apple account by exploiting the support system with authentic-looking tickets and phone calls, users can protect themselves with safety steps.

FoloToy restored sales of its AI teddy bear Kumma after a weeklong suspension following safety group findings of risky and inappropriate responses to children.

Threat intelligence firm Synthient uncovers one of the largest password exposures ever, prompting immediate security recommendations.

Viral video shared by Elon Musk shows Tesla's Optimus humanoid robots performing tasks from cooking to construction, garnering over 58.5 million views on social media.

Chinese hackers used Anthropic's Claude AI to launch autonomous cyberattacks on 30 organizations worldwide, marking a major shift in cybersecurity threats.

Apple's new Sleep Score feature gives you a rating for your nightly rest quality. Learn how to set it up on your Apple Watch and iPhone today.

Essential phone settings to enable before losing your device, including Find My network, location services and security features for iPhone and Android.

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

Cybersecurity research shows weak passwords remain a major threat, with simple patterns and number sequences putting millions of accounts at risk.

New Android malware BankBot YNRK silences phones, steals banking data and drains crypto wallets automatically. Learn how this advanced threat works.

Understanding the Three Different Types of Income

Wealth Building