On this post we will go to the some of the concepts of different ways income can be classified. In general terms income is money you can make in exchange of providing work (labor/service/product), capital at work(investment) or by luck.
Total Income = work + investment + windfall gain.
Income is classed as 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 onto 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% income coming from temporary income to be coming from permanent income.
The process to realising this is as basic as it gets. Each time you earn some 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?
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 everytime, spend it or invest it.
Let’s say your earned $1000/month and you started to invest that money where it can earn a 10% returns yearly that is $100/year. $100 divided by 12 months = $8.33.
You now have 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 of us are caught in. The choice to spend or invest is yours.
Most of us have a feeling that financial success is not something that can be attained, we probably feel that we would work for the rest of our life, and others just accepted that others will have extreme wealth and they won’t. The mentality needs to change, everyone started small, the more dedicated and educated you are in increasing your investments the easier it will be to become financially secure.