Financial Education

How to make more money: the different types of income

Wondering how to make more money? Check out this post for an introduction to the different types of income and their benefits and drawbacks!

Advertisement

Diversifying your income is crucial to financial success

types of income
Learn what the different types of income are! Source: Freepik

Would you like to make more money? Are you always looking for ways to bring in extra income? If so, you’re in luck. There are different types of income that you can generate.

Wooden letters forming the word FEES

8 bank fees explained (and how to avoid them)

Want to save money on your banking? Find out what the most common bank fees are and learn how to reduce or avoid them.

This blog post will discuss the three income types and tips to increase your earnings. So let’s get started.

Why is it essential to have more than one type of income?

Most people initially think there’s just one way to earn income, the one related to their jobs. Nevertheless, there are many ways to make money; some may work better than others.

Having more than one type of income is essential for financial stability. When you have only one source, it can be difficult or even impossible to maintain your standard of living in the long term.

If you’re looking for alternative ways to earn money, then understanding the pros and cons and what kind of income you can potentially make will help you grow your net worth in time.

illustration of people holding giant credit cards

How to choose a credit card: a complete guide

Read this post to see the best tips for you to learn how to choose a credit card. It will help you save money, keep your finances in order, and avoid costly mistakes!

The 3 types of income: Earned, Passive and Investment

You must be aware of three common types of income: earned income, passive income, and investment income.

Below, we’ll fill you in on the definitions, advantages, and disadvantages of each one.

Earned Income

Also known as active income, this is the most common one. Earned income is related to every amount of money you receive for any work you have done.

So your income is earned if you receive a salary or wages, get tips or bonuses, whether you work for a company or are self-employed.

The main characteristic of this type of income is that you’re exchanging time, energy, or knowledge for money.

Advantages

Earned income is a constant and safer way to make money since you’ll perform a job and receive the worked hours daily, weekly, or monthly.

Also, this type of income can be earned in different sectors since jobs exist in multiple areas.

In addition, there are ways to increase your earnings. You can get a raise, for example, if you perform well.

If you’re starting your financial independence process, earning income is a solid way to build it.

Disadvantages

Although the easiest way to guarantee earnings, this income is usually just enough to make a living and pay basic costs.

It will potentially require much of your time since you must work to receive money. And when your current amount isn’t enough, it will need extra hours, such as part-time jobs.

In addition, earned income is subject to the highest taxation rates. Meaning that the more you work and earn, the more the government takes away from you.

Passive income

types of income
The 3 types of income: Earned, Passive and Investment! Source: Freepik

Simply put, passive earning comes from assets you’ve put your money into or worked on before. This type of income will continue to generate cash if you decide to stop working.

It doesn’t require your involvement in day-to-day operations or decisions. You just let things happen with a little input on behalf of yourself.

Passive Income includes activities such as royalty payments, rental, investment, or business partnerships.

Advantages

One of the main advantages of passive income is that you can make extra money without continuously for it. Also, whether you’re working or not, it will continue to produce cash flow.

Another pro of this type of income is that you won’t be exchanging time for money anymore. Therefore, you’ll have more control of your time.

Passive income can also pay lower taxes to the government. So it is a great way to make extra cash, right?

Disadvantages

Passive income is an excellent way to make more money. However, it will require considerable financial, time, and energy investment.

So you must be patient since this strategy requires some time before any return on your efforts.

Investment Income

types of income
Advantages and disadvantages of the types of income! Source: Freepik

Last but not least, we have investment income. This one is generated when you sell something for a higher price than you bought it and gained a capital gain.

So it refers to financial gains exceeding an investment’s original cost. For example, if you bought a stock for $300 and sold it when it’s worth $600, you’ve made $300 as a capital gain.

Advantages 

This income is an excellent opportunity to grow your wealth outside your earned income. It won’t require much work, such as other kinds of income.

Moreover, taxes are lower for capital gains. So with optimized taxes, you’ll get to save more of your money.

Disadvantages

Unlike the other types of income, investment income might involve more risks. The country’s economy, for instance, has an extraordinary impact on it.

Investment income also requires knowledge. Before investing, you’ll need to know where your money is going, so you need to do some research.

Lastly, this type of income usually requires quite an investment. If you want to make significant gains, it will take some money on your part.

Now that you’ve learned about the types of income, it can be of good use to learn how to start budgeting. So, check out our post below to learn all about it!

notebook with the word BUDGET, coffee mug, a pen, and a phone on a table

How to start budgeting: 5 best tips

If you're looking to get your finances in order, these five tips will help you get started on budgeting today. Keep reading and learn how!

About the author  /  Beatriz Vieira

Beatriz Vieira is a producer and copywriter who is part of the finance writer team in this portal. She has a degree in Journalism and aims to improve her bilingual writing skills. Her subjects of most significant interest are culture, finances, and self-development.

Trending Topics

content

Learn How to Apply for Citi® Diamond Preferred®!

Introducing the Citi® Diamond Preferred® credit card – your gateway to financial empowerment. Take advantage!

Keep Reading
content

Netspend® Prepaid Card review: rates, pros and cons

Looking for a prepaid card? Check out our Netspend® Prepaid Card review! Earn cash back on select merchants. Apply with no credit check!

Keep Reading
content

NBKC Mortgage: how to apply

Find out how to apply for the NBKC Mortgage! Enjoy a simple online application! Get customized rates! Keep reading and find out!

Keep Reading

You may also like

content

Bank of America® Travel Rewards for Students!

Embark on your academic journey with the Bank of America® Travel Rewards for Students card. Earn rewards while you learn.

Keep Reading
content

New American Funding Mortgage: how to apply

This article will teach you how to apply for the New American Funding Mortgage! Enjoy easy application and choose between multiple options.

Keep Reading
content

Freedom Mortgage: how to apply

Find out how to apply for the Freedom Mortgage! Prequalify for this #1 VA and FHA lender today! Keep reading for more information.

Keep Reading