- Money Mentor
What are the 7 sources of income?
Income is the lifeblood of any financial plan. Without income, it is impossible to achieve financial goals or even meet basic living expenses. The good news is that there are multiple sources of income that one can explore to generate more revenue streams.
In this blog, we will explore the seven sources of income that individuals can tap into to generate more income.
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Earned income is the most common source of income for most individuals. It is the income that is earned through employment, freelancing, consulting, or running a business. Earned income is directly proportional to the amount of time and effort one invests in their job or business. This type of income is taxed at the highest rates since it is subject to income tax, Medicare, and Social Security taxes.
Passive income is the income that one earns without having to actively work for it. It is the income generated from investments such as rental properties, dividends from stocks, or interest from savings accounts. This type of income requires initial investment and effort but generates continuous income without additional effort. Passive income is taxed at a lower rate than earned income.
Portfolio income is the income generated from buying and selling assets such as stocks, bonds, and mutual funds. This type of income is generated through capital gains, which is the difference between the buying and selling price of an asset. Portfolio income is taxed at a lower rate than earned income, but the rate may vary based on the holding period of the asset.
Rental income is the income generated from owning and renting out properties such as apartments, houses, and commercial spaces. This type of income requires initial investment and effort but generates continuous income without additional effort. Rental income is taxed at a lower rate than earned income.
Capital gains are the profits earned from selling assets such as stocks, bonds, and real estate. This type of income is taxed at a lower rate than earned income and varies based on the holding period of the asset.
Royalties are the payments received by individuals for the use of their intellectual property such as patents, trademarks, and copyrights. This type of income is generated through licensing agreements and is taxed at a lower rate than earned income.
Annuities are financial products that provide regular payments to individuals for a fixed period or for life. This type of income is generated through purchasing an annuity contract with an insurance company. Annuities are taxed at a lower rate than earned income.
In conclusion, having multiple sources of income is essential to achieving financial independence and security. By tapping into these seven sources of income, individuals can diversify their income streams and generate more revenue. It is important to note that each source of income comes with its own risks, rewards, and tax implications. Therefore, it is important to seek professional advice before investing in any of these income sources.