Financial Report
Income is categorized into three broad types: active (earned) income, passive income, and portfolio income. Any money that you will ever make will fall into one of these income categories. Those excluded are lottery winnings or inheritance money. Many seek to understand how to become rich and create wealth but it’s vital that you know how to generate multiple streams of passive income.
Passive income is the income that’s generated from a trade or business, which does not require the earner to participate. It is often considered investment income that is income that is not obtained through working. With this type of income it can expect to continue whether you continue working or not. Those close to retirement are seeking to replace earned income with passive, unearned income. The rich know that the secret to wealth creation earlier on in life is passive income. It is the positive cash flow generated by assets that are controlled or owned by you.
To make the adjustment from earned income to more passive sources of income can be challenging. We’ve been taught our lives through the education system that we should do a job and rely for the most part on earned income. This is a concept that works only for the government. This kind of income generates large volumes of tax. It does not work for the rest of us, especially the ones who are focused on becoming rich, and building wealth. However, to become rich and create wealth you will be required to change your mindset from relying on earned income only.
Real Estate & Business – A Source of Passive Income
The most important thing to understand about passive type of income is that it’s not dependent on your time. It is dependent on the asset and the management of that asset. Passive income requires leveraging of other people’s time and money. You could purchase a rental property for $100,000 using a 30% down payment and borrow 70% from the bank. Assuming this property generates a 6% Net Yield (Gross Yield minus all Operational Costs such as insurance, maintenance, property taxes, management fees etc.) you would generate a net rental yield of $6,000/annum or $500/month. Now, subtract the cost of the mortgage repayments of say $300/month from this and we arrive at a net rental income of $200 from this. This amounts to $200 passive income that you didn’t have to trade your time for.
Business can be also be a source of passive income. Most entrepreneurs start out in business with the idea of starting a business so as to sell their stake for some millions in a few years time. This dream will only become a reality if you can make yourself replaceable so that the business’ future income generation is not dependent on you. Therefore, you will have created a source of passive income. For a business to become a true source of passive income it requires the right kind of systems. It also requires the right kind of people operating those systems.
Passive income generating assets are usually actively controlled the owner (some examples are a rental property or a business), and you have a say in the day-to-day operations of the asset which can positively impact the level of income generated.
The ones who have become wealthy build leveraged/passive income by growing the size and level of their network instead of simply growing their skills and expertise. Wealthy people spend their time collecting business cards and building relationships, whereas the majority spend all their time collecting diplomas!
Residual Income
This is income that is generated from work done once. They are recurring payments that you receive long after the initial product/sale is made.
Examples include:
• Royalties from the publishing of a book.
• Renewal commissions on financial products paid to a financial advisor.
• Rentals from a property letting.
• Revenue generated in MLM networks.
Passive income is considered by many to be the key to long-term wealth creation and wealth protection. The major benefit of passive income is that it is recurring income. It’s the type of income that typically gets generated month after month with not much effort. Understanding how passive income works is a critical step on the road to wealth creation.
To understand more about active income, passive income, and portfolio income please visit the website at http://wminow.com/?ID=GrowSuccessToday
