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Three Types of Wealth

Three Types of Wealth

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.

Earned Income

Earned income is money received as pay for work performed, such as wages, salaries, bonuses, commissions, tips, or 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.

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 or property rent payments are examples. The interest in 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.

Portfolio

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.

There is a basic formula for building wealth: make more money than you spend, avoid debt, and invest wisely, but saving your way to wealth is nearly impossible.

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 in order 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 leverage your time to spend it doing the things you love to do versus doing the things you have to do. If you want to learn more about how to leverage your money and maximize your income streams, join our Legacy Building Wealth Club today.


Areas of Review

Takeaway

Big picture takeaway points

  1. Your money should be working for you, so you don’t work for it.
  2. You cannot save your way to wealth.
  3. Everyone wants to be successful but the ones who truly are don’t ever quit.

Reflection

Self-reflection questions to think more about the content

  1. Can I achieve all three types of wealth?
  2. What is my return on every dollar I spend?
  3. Slow and steady wins the race, it's the small things I do today that add up over time.

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

Legacy Wealth Club