In this post, we will go through the concepts of 3 income types and how they can be classified. In general terms, income is money you can make in exchange for providing work (labor/service/product), capital at work(investment), or luck.
Total Income = work + investment + windfall gain.
Income is temporary if the income flow ceases the day you cease work.
- Salary and Wages
- Business Profits
- Director Fees
Permanent income, on the other hand, does not depend on your active involvement(most of the time). Income flow would continue to work for you for the rest of your life and can be passed on to your beneficiaries.
The other main source of income is by way of a benefactor or simply luck. This is more about good fortune and just for information.
Attaining Financial Success
Having financial success involves progressively moving from 100% temporary income to come from permanent income instead.
The process of realizing this is as basic as it gets. Each time you earn money from work(temporary income), save and invest as much of it as you can to turn it into investments(permanent income).
How Does That Look Like?
Have a pause and think about this question.
Given the choice between $1000 now and $100 each year for the rest of your life which would you take?
This is the choice you would have to make every time, spend it or invest it. Let us say you have an extra income of $1000/month and you started to invest that money where you can earn a 10% return yearly which is $100/year. $100 divided by 12 months = $8.33.
You now have a permanent income of $8.33/month. Now that is amazing. Progressively if you can increase your investment, your permanent income increase.
|Amount Invested||Permanent Income/month|
And we haven’t factored in the power of compounding interest yet. I’ll cover that in another post. Basically the earlier you start and the longer your investment goes you would see exponential returns.
The goal is to invest savings so that permanent income flow continues to increase to the point where you can break the hand-to-mouth cycle that most people are caught in. The choice to spend or invest is yours.
3 Income Types Summary
Aim to move your source of income to a permanent income and financial success can be attained.
Most people have a feeling that financial success is not something that can be attained, probably feel that they would work for the rest of their life, and just accepted that other people will have extreme wealth and they won’t. The mentality needs to change, everyone started small, and the more dedicated and educated you are in increasing your investments the easier it will be to become financially secure.
Hope you like this post about the 3 Income Types. Don’t forget to subscribe to the newsletter for more tips.