Earned Income
comes from having a job in a company
or in someone else’s business.
You get paid for your time and
services rendered. In the previous
section, we mentioned that workers
work just hard enough not to get
fired and employers pay just enough
for workers not to quit.
This indicates
that the income an employee can
generate from working for an employer
is limited. There is the possibility
that an employee may devote extra
effort thinking the employer will
pay him/her more. It is a rare
possibility particularly when
business is difficult, but possible.
And even if
it happens, it is still limited.
Whatever additional profit gained
by the employer as a result of
the employee’s extra effort,
the employer will get the bigger
“slice of the pie.”
You are, in effect, making someone
else rich through your added effort.
Don’t think I’m discouraging
this. It is a good act.
I’m just
stating a fact. It’s likely
that you will be telling yourself
mentally: “Hey, that’s
not fair.” Fair or not, that’s
the way life is, when you work
for money.
If you are
an employee, you get your money
or paycheck after everything else.
It is earned income, less taxes
and everything else deductible,
before money reaches your hand.
And if ever the money reaches
your hand, the next place it is
bound to go is to pay your bills.
If the amount is not enough, you
are bound to borrow, which makes
you debt-ridden if it accumulates.
Now, this is one big mistake.
Don’t ever get debt-ridden.
It is the quicksand to poverty.
Earned Income
is a safe way to generate an income.
There is not much thinking to
do. Except for a few high paying,
high profile jobs, your work is
mostly concentrated on a few things
where you keep repeating the same
functions. Unconsciously, this
discourages creativity, so boredom
starts to set in.
It is because
of this boredom that getting to
work every morning is such a drag
and you keep on looking forward
to weekends, holidays, and vacations.
Unless you
really love what you do without
consideration to the income it
generates, or unless you are highly
paid, or unless there is a lot
more to learn in your job, or
unless financial security is of
no importance to you, there is
no reason for you to stay long
in the “rat race.”
The earlier
it is to get out of the trap,
the better chances you will attain
financial success.
Passive Income
is generated from businesses.
You can sell products or offer
services, or a combination thereof.
Examples are buying/selling real
estate, trading merchandise as
in wholesaling and retailing,
etc. In many cases, you need not
be physically present in your
place of business.
There are also
small businesses like vending
machines where you hardly require
an employee to visit those machines
for refill (since you can do it
yourself). You can also go with
franchising; either be a franchiser
or a franchisee. The list is endless
as long as you do what you love
to do.
The beauty
of going into your own business
is that you work for you, not
for someone else. You enrich yourself,
not someone else. Your time is
disciplined but more flexible
because you can make your own
schedule.
Another advantage
of going into business, especially
in your own corporation, is that
you earn and spend before tax
is deducted, unlike being an employee
where you are taxed before you
spend.
Portfolio Income,
just like passive income, is making
money work for you. Portfolio
Income is generated from paper
assets like bonds, stock market,
certificate of deposits, and mutual
funds. They are called paper assets
because literally, they are businesses
that revolve on papers.
It is
in portfolio income where financial
knowledge is of vital importance.
Your intellect interacting with
creativity can either unmake or
make you rich.
Sincerely,
Reggie Smith |
Don Benson |
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