If you want to create financial freedom, you will need to understand the 3 types of income. In this post I will outline each of the 3 types of income.
Active Income Or Linear Income
This is the money earned from a job, where you are trading your time for money. Even if you become the owner of a business and have to be there to manage your business daily, you will still be trading your time for money. You may earn more than your employees, but you will still be earning an active income.
In most cases, working as an employee will not make you wealthy. As a business owner you can become wealthy, but you will not enjoy much time freedom.
Portfolio Income Or Investment Income
This is the income produced from investing in stocks and shares. Earning interest from savings accounts used to be popular, but recently interest rates have dropped significantly. As an employee you can start investing in stocks and shares to build-up portfolio income. This can increase over time to increase your net worth.
This income type will enable you to reach financial freedom and also provide you with time freedom. Passive income is money that is earned with little involvement from you. You will need to put in a large amount of effort at the beginning and continue earning money on a regular basis, with little effort to maintain the income source.
Passive income can be earned by writing a book or creating a piece of music. You will earn a commission every time a copy of your book is sold. You will earn a commission every time your music is sold. You can also earn money every time your music is played in the form of royalties.
Renting out property also brings in passive income. This option may not be viable for someone a person starting out on a limited budget.
Another really good source of passive income can come from network marketing, where you can earn commissions from the sales generated by a network of distributors. You can use the power of leverage to build up massive global networks earning you commissions of multiple levels.
Blogging can also be a really good source of passive income. You can monetize your blog using affiliate marketing and advertising. You will need to put in a lot of effort in the beginning to get your blog posts indexed and ranked by search engines. Once a steady flow of visitors has been established to your blog, you will be able to earn passive income from affiliate commissions and advertising revenue.
You can also establish a YouTube Channel and monetize the videos using affiliate links in the description and also ads via google’s adsense program. Establishing a YouTube channel that earns you a substantial passive income will take time and effort. You will need to select a niche that has potential to generate revenue. The videos you upload have to be of good quality to generate views to earn you a passive income.
Another good source of passive income can be earned by investing in dividend paying stocks. You can continue to re-invest the dividends to build-up a sizable dividend stock portfolio. Once you have established the desired stock portfolio, you will have a good source of passive income.
Most people start off by earning liner income, a small number of people move out of the trading time for money trap. You can make the transition from earning active income to passive income by using your free time and excess income constructively.
I am documenting my journey from earning an active income to creating multiple sources of passive income on this blog. The transition from active income to passive income takes a lot of time and effort.