mestokaplice Finance

Different Types Of Income

Pay check is the money that we get as our salary or wages. Before discussing about the passive pay check, I would like to talk about the different types of income. Basically, there are 3 different types of income. They are:

1. Earned Income
2. Passive Income
3. Portfolio Income

Earned Income
Earned income or pay check is the income that we get by working in a company or in someone else’s business. We received the pay check at the end of the month for our time and service rendered. So, our time and effort are equivalent to our pay check but most of the time we feel that we get less than what we are supposed to get.

So, we work harder and harder with the hope that the employer will pay more or increase our pay check. Then what is happening after we get this earned income? We pay our bills and other expenses. Then we have left with small amount to spend. So, we can say that our earned income is directly proportional to our physical involvement and time as well as it is very limited. We cannot get a lot of money or get rich by working for other people’s business.

On the other hand, earned income is the secure way to generate income and less risky if we compare to other means of generating income because there is nothing to think a lot. So, most of the jobs will get used to be a routine and days will become no longer be a challenging life. Then, it could lead to a life of being trapped in a rat race.

Passive Income
Passive income is the income that generated without physical involvement of us. We do not have to work to get this passive income. Some instances are renting of our own flat or apartment, trading merchandize as in wholesales or retailing, selling product or service, etc.

There are a lot of ways to generate passive income. If you compare with the passive income to earned income, the advantage is that you are working for yourself and not for anybody else. The outcome of our job is only for us.

Portfolio Income
Portfolio income is most likely the same as passive income. This income is generated from paper assets like the bond, stocks, unit trust, deposits, etc. So, we need to have financial knowledge to get this portfolio income.

Furthermore, generating income from this category without proper financial education is very risky for everyone.

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