What is income?
When it comes to income, many of us think about traditional forms like salary and business income. But other types of income can create additional streams of revenue for you. From residual and passive income sources to leveraging strategies such as investing or starting a side hustle, we’ll explore ways to increase your total net worth by making more money through different avenues.
Let’s take a closer look at what exactly ” income ” means and discover some great tools available today for creating new revenue streams!
What is Income?
Income is a person’s money from working, investments, or other sources. It can be classified into two categories: net income and gross income.
Net Income vs. Gross Income
Net income is the amount you make after taxes, deductions, or expenses are taken out of your paycheck. This number reflects what you take home in cash each month.
Gross income, on the other hand, is your total earnings before any taxes, deductions, or expenses are taken out. This number usually exceeds your net income because it includes all pre-tax expenses, such as Social Security contributions and health insurance premiums.
Types of Income
There are several different types of income, including:
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- wages earned through employment;
- business profits;
- rental payments for real estate;
- interest earned on savings accounts or bonds;
- dividends paid by stocks or mutual funds;
- capital gains from investments in stocks, bonds, or real estate;
- royalties received for books written or music composed;
- annuities received from retirement plans such as 401(k)s and IRAs;
- pensions provided by employers to retired employees who worked at least ten years with them before retirement age;
- alimony payments made by an ex-spouse to another spouse following a divorce settlement agreement;
- government benefits like Social Security Disability Insurance (SSDI);
- unemployment compensation payments made when someone has lost their job due to no fault of their own but meets specific eligibility requirements set forth by state law;
- and lottery winnings if you’re lucky enough!
Income is important in financial planning; understanding the different income types can help you create additional streams. Residual income is a great way to generate passive income over time, so let’s explore it further.
Residual Income
Residual income is an ongoing stream of income that continues to be generated after the initial effort has been expended.
It is a form of passive income, requiring little to no additional work from the person who earned it. Examples of residual income include royalties from books, music, or films; rental payments on properties; and commissions from repeat sales or referrals.
Examples of Residual Income
One example of residual income is when someone writes a book and receives royalties every time it sells.
Another example could be if someone invests in stocks and bonds (one of my favorites), which generate dividends over time without any additional effort required by the investor once they have made their initial purchase decision.
A third example would be rental property owners who receive regular monthly rental payments regardless of how much work they put into managing their properties once they’ve found tenants. (But I have found that this takes a lot of continuing work versus investing in REITs).
The primary benefit of residual income streams is that you can generate an ongoing revenue source without continually reinvesting your efforts into maintaining them over time. This means that once these sources of revenue have been established, they will continue to provide the money even while you sleep!
Additionally, since this type of passive income does not require constant attention or upkeep like other types do (such as running a business), it allows for more free time, which can be used for activities such as family or hobbies outside one’s job responsibilities.
Salary and Business Income
Salary and Business Income are two of the most common sources of income.
Definition of Salary and Business Income
Salary is an agreed-upon amount you receive from your employer in exchange for work performed over a set period (usually weekly or monthly). This type of income does not fluctuate like other types; it’s predictable and reliable.
Business income is any profit earned through operating a business venture – selling products/services online or in a brick-and-mortar store. The critical difference between salary and business income lies in how much control you have over the amount you make each month; with salary, there’s less flexibility, while with business income, there’s more potential to increase earnings if managed correctly.
Examples Of Salary And Business Income
An example of salary would be someone who works full-time at an office, earning $50k per year ($4166 per month).
An example of business income could be someone who owns their own web design company, which brings in $10k per month from clients they serve across the globe.
Strategies
Creating additional revenue streams can help increase financial security by providing multiple sources of steady cash flow, which can be used to cover expenses or invest in new opportunities with greater potential returns. This involves diversifying your sources of earnings so that if one stream dries up, others will still be available for support; this could include taking on freelance gigs, starting a side hustle like selling products online, or renting out extra space in your home/apartment. Here are some strategies you may want to consider:
Investing in Real Estate
Investing in real estate offers several benefits, including tax breaks, appreciation over time, rental payments from tenants who occupy the property. There are many different ways to invest in real estate. Here are some choices to consider, each with our Lever Rank ranking:
Using your real estate for vacation rentals can be very profitable and a great way to make more money from a property you own.
- Great Way to Increase Returns
- Many Vacation Rental Platforms
- Significant Capital to Start
- Increased Maintenance Costs
- Requires a Lot of Work
- Exposure to Risk
- Requires Staffing to Scale
- It is a Job
Being a landlord and collecting rent as a residential property owner is probably one of the oldest and most stable forms of business income.
Just don't overpay for your properties.
- Consistent Demand
- Mature Business Model
- Favorable Tax Treatment
- Significant Capital Required
- Concentrated Capital Risk
- Legal Risks
- Tenant Risks
- Repairs and Maintenance
A triple net lease (commonly referred to as NNN or “triple net”) is a rental agreement (typically commercial) in which the tenant is responsible for property taxes, insurance premiums, and structural maintenance and repairs to the property (in addition to rent).
A triple net lease removes most of the risk of being a landlord because the tenant is now responsible for everything – the landlord receives the rent check.
- Tenant Responsible for All Expenses
- Favorable Tax Treatment
- Long-Term Leases
- Significant Capital Required
- Concentrated Capital Risk
- Tenant Credit Quality
- Re-Leasing Risk
- Illiquid
What is digital real estate? In the online world, a piece of digital real estate is known as a “domain name.”
Also known as "Domain Name Investing," Digital Real Estate is a very attractive business model requiring very little time to set up and start.
- High-Profit Potential
- Online Business
- Cheap to Get Started
- Several Ways to Monetize Domain Names
- Many Available Sales Platforms
- Highly Competitive
- Volatile Markets
- Takes Time to Sell inventory
Real estate has always been a popular investment vehicle for growth and income.
Historically, real estate investors were limited to directly buying real estate, managing properties, and collecting rental income.
REITs take all management issues away and give REIT real estate investors liquidity.
This is our favorite way to invest in real estate.
- Requires Little Capital
- Liquidity
- Diversification
- Professional Management
- Better Returns than Direct Investment
- Price of Investment Moves with Stock Market
- No Depreciation Deductions
- Typically Non-Qualified Dividends
Starting a Side Hustle
A side hustle is any activity done outside regular working hours that generates additional revenue; examples include driving for Uber/Lyft, becoming an influencer on social media platforms, or affiliate marketing. Here are some additional online side hustle options:
Day trading is buying and selling a security within a single trading day.
You can make a lot of money trading the financial markets, BUT it is a full-time job. Your work is not leveraged, and there is no compounding effect.
- Potential to Make a lot of Money
- Leverage (Magnifies Gains)
- Many Resources Available
- Easy Access to Markets
- Online Business
- Potential to Lose a Lot of Money
- Leverage (Magnifies Losses)
- High Risk
- High Failure Rate
- Very High Learning Curve
- Lack of Transparency in Some Markets
- No Compounding Effect
- Essentially a Profession
Digital Marketing (also known as online marketing) raises awareness of a business or brand via online channels.
It is a very much in-demand service and can be very profitable.
- Very Profitable
- Incredible Demand
- Very Inexpensive to Start
- Inexpensive to Learn
- A Lot of Productivity Tools
- Strong Outsourcing Market
- Incredible Amount of Competition
- No Moat
- Very Time Consuming
- Client Perception
- Clients
Cryptocurrency mining is a business model using computers to add transactions to the cryptocurrency’s blockchain by solving the complicated mathematical problems associated with that specific cryptocurrency’s algorithm.
In return for this computer’s “work,” the business receives a small fee for verifying that transaction block.
- Can Start Using Just 1 Computer
- Easy to Automate
- A Lot of Choices of What Coins To Mine
- Many Online Resources
- Volatile Market
- High Risk
- Fast Decline Curve on Hardware
- Technical Skill Needed
- Electrical Costs
- Infrastructure Required
- Rife with Scammers and Hackers
- Online Business
- Low Touch Source of Residual Income
- Inexpensive to Start
- Turn-key Hosting Available
- Coin Quality
- High Risk of Loss
- Very Complex if Setting Up Yourself
- Cryptocurrency is Volatile
- Industry Rife with Scams/ Hackers
What is digital real estate? In the online world, a piece of digital real estate is known as a “domain name.”
Also known as "Domain Name Investing," Digital Real Estate is a very attractive business model requiring very little time to set up and start.
- High-Profit Potential
- Online Business
- Cheap to Get Started
- Several Ways to Monetize Domain Names
- Many Available Sales Platforms
- Highly Competitive
- Volatile Markets
- Takes Time to Sell inventory
Real estate has always been a popular investment vehicle for growth and income.
Historically, real estate investors were limited to directly buying real estate, managing properties, and collecting rental income.
REITs take all management issues away and give REIT real estate investors liquidity.
This is our favorite way to invest in real estate.
- Requires Little Capital
- Liquidity
- Diversification
- Professional Management
- Better Returns than Direct Investment
- Price of Investment Moves with Stock Market
- No Depreciation Deductions
- Typically Non-Qualified Dividends
Dividend stock investing is one of my favorite forms of “Levered Income.”
There are several different approaches to dividend stock investing. Still, the primary dividend stock investment strategy is to create enough dividend stock income that you do not need to deplete your capital in retirement.
In a sentence, the best dividend stock investment strategy is to build a dividend portfolio to pay you more yearly (after taxes) than you spend.
- Requires Little Capital to Get Started
- Liquidity
- Diversification
- Professional Management
- Price of Investment Moves with Stock Market
- Requires a Lot of Capital to Achieve Financial independence
- "Sucker Yields"
Affiliate marketing is a potent business model to leverage to earn consistent, growing residual income and is one of our favorite business models on Levered Income.
- Online Business
- Unlimited Residual Income Potential
- Inexpensive to Start
- Inexpensive to Operate
- Plenty of Tools to Leverage Work Units
- Intense Initial Effort
- Learning Curve
- Time to Earning Ramp
If you already have a full-time job but want to increase your earnings, look into ways to maximize it. Consider asking for raises or bonuses based on performance metrics.
What is Income? Final Thoughts
What is income?
Income is a crucial part of life, and many different types of income can be earned. Whether you’re looking to supplement your salary with residual income or start a business to generate more money, understanding the basics of income will help you create additional revenue streams.
Understand that income from working a job should be invested into things that generate residual income for you moving forward. If you “rinse and repeat” enough, your residual income will exceed your expenses over time, and your Residual Wealth Ratio™ will exceed 1. Think of it as a snowball rolling down a hill, getting bigger and bigger.
You are now technically financially free.
Want to see how you are doing? Use our calculator below:
