It's All About Income

[financialadvice]

We All Want Money

Some work hard for it while other's don't and smart people get it from many different sources. Income can be earned through hard work and unearned through luck or investing. There is passive income which doesn't require much effort and active income which requires continuous input. Money comes in lump sums, or in streams. The most important distinction to make is after-tax income and pre-tax income.

The last #financialadvice post spoke about budgeting basics. This one is about the income required to make a budget. We aren't going to get into business accounting today, so forget about profits and revenues; this is going to be personal.

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You Have to Get Money Before You Can Spend It

A corporate finance professor once told me that the best way to make money is to get it from someone else. As a tenured professor, he likely had a very high salary with a terrific pension and being an expert in corporate finance probably made him a pro at investing. Most people make their money from working, in general, the harder and smarter you work, the more money you will make. There are always exceptions to this rule, but if you make $50000 per year (Ignoring inflation and taxes) and work for 40 years you will earn 2 million dollars! , your salary/wage is likely your biggest source of income. So work on improving it and you may want to consider insuring it.

You can also earn income from bonuses, commissions, tips, or through self-employment but these sources are not as reliable as above. Don't confuse earning income with the IRS definition of Earned Income, tax definitions vary from jurisdiction to jurisdiction. This is not a tax-advice column and I am not a tax expert

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Unearned and Passive Income

The best type of income is unearned income, especially if it's free. Winning the lottery, getting a gift, a prize, luck at the casino, an inheritance, a trust fund or even 'free' government money is great but it shouldn't be relied upon until you actually get it. I cannot provide advice as to how to come across unearned, free money and definitely don't recommend relying on the government for it.

Passive Income isn't necessarily free, people often save and invest to get it. You can earn royalties from past work, dividends from your investments, interest, capital gains, annuities, perpetuities, rent, business income, there are many sources and they don't require much participation. The more sources of passive income you have, the better. Once you have enough reliable passive income to meet your needs, you may be able to stop working altogether.

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There are so many ways you can make money, income comes in all different shapes and sizes. Most of you reading this are already making some money from work, through investing, blogging and other businesses. Just remember, don't count income until you have paid your taxes and it is in some type of currency. Once you have enough income to cover your expenses, we can talk about investing it!

Thank you for reading, I hope you found it valuable. Please feel free to comment and ask questions

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