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Three Types of Wealth: Earned, Passive, and Portfolio 

Three Types of Wealth: Earned, Passive, and Portfolio

Making money is fun. But working for it, however, is debatable. Trading time for money can be advantageous but it’s not the only way to earn a living. There are multiple ways to make money but learning how to make money outside of a 9-5 is the best kept secret. Let’s take a deeper look at the three types of wealth.

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Earned Income

Earned income is money received as pay for work performed, such as wages, salaries, bonuses, commissions, tips, and net earnings from self-employment. It can also include long-term disability and union strike benefits and, in some cases, payments from certain deferred retirement compensation arrangements.

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Passive Income

Passive income is a revenue stream that may involve some initial effort or expenditure but continues to reap payments down the line. Music and book royalties and property rent payments are examples. The interest on savings accounts is passive income. A limited partnership, in which an individual owns a share of a business but does not participate in its operation, produces passive income. There are many ways to create this income stream and offer the building blocks of wealth.

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Portfolio income is money received from investments, dividends, interest, and capital gains. Royalties received from investment property also are considered portfolio income sources. Most portfolio income gets favorable tax treatment. Dividends and capital gains are taxed at a lower rate than earned income. In addition, portfolio income is not subject to Social Security or Medicare taxes. This level of wealth building allows you the opportunity to have money working for you.

There is a basic formula for building wealth: make more money than you spend, avoid debt, and invest your savings wisely, but saving your way to wealth is nearly impossible. Giving yourself an opportunity to create and build wealth is an incredible journey for those willing to put in the hard work, time and education.

The first step to this is to earn enough money, which is easier if you're doing work you enjoy, are good at, and that pays well. The second step is to save enough money, which can require disciplined budgeting and planning. And lastly, when you have the ability to invest your money to work for you rather than you work for it, you may be able to create a stream of passive income while continuing with your earned income streams.

Making your money work for you is how you can leverage your time to spend it doing the things you love to do verses doing the things you have to do to get by. If you want to learn more about how to leverage your money and maximize your income streams, join our Legacy Building Wealth Club today.

Join Legacy’s Building Wealth Club today and continue your journey. Let our education and experience lead the way!

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