INCOME
3 Types of Income
1.
2.
3.
Earned Income
Portfolio Income
Passive Income
Earned Income


Any income that is generated by
working
Activities that generate earned
income:
 Working a job
 Owning a small business
 Consulting
 Gambling
 Any other activity that pays
based on time/effort spent
Earned Income

Pro:


don’t need any startup capital in order to make earned income
Cons:



once you stop working, you stop making money
because the amount of money that is made through earned income is
directly proportional to the time and effort you spend working, it’s
difficult for someone to make more earned income without either
learning a new skill or working longer hours
earned income is taxed at a higher rate than any other type of income.
Portfolio Income


Income generated by selling an
investment at a higher price than
you paid for it
Activities that generate portfolio
income:
Trading paper assets (ex: stocks,
bonds)
 Buying and selling real estate
 Buying and selling and other assets
(ex: antique cars)

Portfolio Income

Pros:



Once you have the knowledge and experience to generate portfolio income
regularly, you can continually reap the benefits by reinvesting after each
sale.
any portfolio assets held long-term are generally taxed at a lower rate.
Cons:




takes a good bit of knowledge and experience to learn how to make
money trading paper assets
have little control over your investments
generating portfolio income generally requires you to have money to invest
upfront
portfolio income is often taxed at very high rates
Passive Income


Money you get from assets
you have purchased or
created
Activities that generate
passive income:




Rental Income from Real Estate
Business Income
Creating and Selling Intellectual
Property
Affiliate or Multi-Level Marketing
Passive Income

Pros:
 recurring
income
 allow the owners active control over the investment
 allow for the most favorable tax treatment
4 Basic Ways to Earn Money
1.
2.
3.
4.
Employment - When an employee works for an
employer and gets wages/salary in return.
Self-employment - This means working for yourself
that can earn you money.
Business - This implies having a set establishment or
system that can churn out money for an individual.
Investment - This involves making money out of money
or in other words making money out of the
accumulate capital.
Various Factors that Affect Income




Career Choice
Education
Skills
Economic Conditions
Occupational Necessities: Class Activity
Imagine the world had to start all over.
All that exists are water, land, trees, animals and 50 people
whose ages range from 10 to 50.
50 people, including yourself, are put you in charge of
selecting the seven most necessary occupations to get the world
going again.
No training for any of these occupations is necessary.
List the seven occupations and the reasons why you would
select each one.
Skills


Earning power is the ability to earn money in
exchange for work. How much you earn depends on
the value of your skills in the marketplace.
An individual’s value as a worker – the wage or
salary received for a specific job – is related to the
skill level and education of the worker, the demand
for that work in society, and the availability of
qualified workers.
Education

Generally, in our
society, people with
higher education and
more skills earn more
money on the job than
those with less education
and fewer skills.
VALUE OF EDUCATION
Disposable Income

Examples:
 Taxes
 Government
transfer
payments
 Employee benefits
Government Transfer Payments


Account for about 20% of disposable income
A decrease in transfer payments will negatively
impact the economy.
Taxes & Disposable Income


Taxes provide money for the government to
operate and provide services to you and others
Lower the disposable income we have left for our
own wants and needs
Employee Benefits & Disposable Income


The money is taken out of your pay check before
your earnings are taxed
Tax-Deferred Plan: means that taxes due on the
amount invested and/or its earnings are postponed
until funds are withdrawn by you to use usually at
retirement
 Examples:
401K, 403B, IRA
So, What do you think?






Who has an income?
What type of income?
Is it from working?
What kind of job?
Remember, earnings from babysitting or dog
walking counts as income.
Have you ever sold anything on eBay or to a
friend?
If so, what type of income was the money received?