Today, I would like to talk about income as well as the different types of income. Often you may hear the terms passive income or residual income. Whether it’s passive, residual, active, earned, capital, profit, rental, royalty, interest or dividend income. For most of us it’s about having something coming in (financially speaking) from somewhere and this is what we call income.
Not only will we discuss the different types of income but also the many different ways to earn multiple sources of income and just how much you may need to invest in order to get started. The “cost to be your own Boss”. Before we begin we need to ask ourselves a few questions, the first being what is income and the second being what are the different types of income.
Investopedia defines income as money (or some equivalent value) that an individual or business receives in exchange for providing a good or service or through investing capital. Wikipedia defines income as the consumption and saving opportunity gained by an entity within a specified time-frame, which is generally expressed in monetary terms. For most of us its money received for work or through investments looking for a good return on your investments (ROI) or a return on your time invested (ROTI). Now that we know what it means lets take a look at several different types of income.
Earned Income
- Earned Income also known as active income is any income from what some call a 9 to 5, a regular or real job which is when you are hired by an employer as an employee. This is also the type of income if you are self-employed, whether it’s as a freelancer, gig worker, sole proprietor or sole owner of an LLC. Work an hour get paid for the hour. In order to earn this type of income you should never have to pay. This is is where they pay you, they may ask for a cut but never money upfront. Whether it’s a w-2 or 1099, self-employed or not, independent contractor, freelancer, giger. Whether you work for Walmart, Uber, Lyft, PostMates, GrubHub or DoorDash. You generally get paid for time worked. There is no residual or passive money to be made there. Unless you sign up to join Uber, Lyft, GrubHub, DoorDash or PostMates affiliate program but that’s a different income bracket that we are talking about.
How Can I earn Earned Income?
Get a job or do freelance or gig work
Capital Income
- Capital Income is any income that results from a sale of a capital asset such as bonds, stocks, real estate and now cryptocurrency. The profit from the sale is called capital gains income which you must pay a tax on that is called capital gains tax.
How Can I earn Capital Income?
Buy something and sell it for a profit
Whats The Cost To Be My Own Boss
This type of income is based on the initial sum invested. The cost of the stock or item you wish to resell at a higher value. If it’s Air Jordan’s, Yeezy’s, Lebron’s or other sneakers then it’s the price of the sneaker which may cost between $250 – $400 for the shoes. In the case of stocks, bonds and cryptocurrency it’s dependent on how much the share of stock costs which may be anywhere from .01 (penny stocks) to $1,874.97 a share (Amazon’s stock price on 1/3/20).
Related Article: Stock Investing with Robinhood in 2020
Rental Income
- Rental Income is earned by purchasing property and renting it out, becoming a Landlord or renting out a property via AirBNB.
How Can I earn Rental Income?
Buy property and rent it out.
Get tenants and become a landlord.
Whats The Cost To Be My Own Boss
This type of income is based on the price of the property which you plan to buy/purchase so the cost may vary. Renting out your property on Airbnb is also a form of rental income.
Profit Income
- Profit Income websites, apps, ad revenue, sponsorships and affiliate marketing. people often ask how do you make money online with affiliate marketing while not realizing that they are missing opportunities right under their nose(s). For instance, if you use any of these new age services like Uber including Uber Eats, Lyft, Blue Apron, Amazon, Apple, Target, Macy’s the list goes on and on. Often after you’ve gotten out of that Lyft or Uber and have left your tip and rating you will be reminded to hit that share button and share to your social media or invite your friends and family. What most people don’t know is that with Lyft you can get $50 in your account toward rides for inviting and getting someone to signup who in turn will receive $50 in their account toward rides or a certain amount of free rides. In most cases, signing up for the service automatically enrolls you in their affiliate program. This way you can begin earning right away as an affiliate marketer or what Amazon likes to call an Associate Advertiser. In a sense you are advertising or marketing for the brand or company every time you share it to your friends and followers. Most companies will reward you for this. Some companies will give you money to spend to continue using their services. Others will pay you via PayPal, check or by directly depositing the funds in your bank account when your earnings reach a certain minimum.
How Can I earn Profit Income?
Build app or website with ads, Affiliate marketing aka CPA or PPA, CPC, write a book
Whats The Cost To Be My Own Boss
This type of income is based on the price of developing your app or website. This includes hosting, domain purchase and other variables. These other variables can cost you anywhere from $12 a month to $50 a month. Some are passive/residual some are not. For instance, the Hot Dog vendor is in the category of profit income because they buy at cost and sell for a profit. Making a profit in the business is dependent on someone standing outside selling the hot dogs. However, if the vendor is sick that day then that is a day you don’t earn or get paid.
Royalty Income
- Royalty Income can be earned for the use of copyrights, trademarks and patents or from the extraction of oil, gas or minerals. There are now services like royaltyexchange.com that allow you to purchase the rights of Artists material as an investor. If you are a singer/songwriter you receive your royalty payments from a (PRO) Performance Rights Organization like BMI, ASCAP or SESAC.
How Can I earn Royalty Income?
Write a song, buy/own mineral rich land
Whats The Cost To Be My Own Boss
Royalty income is based on the amount of minerals you have on your land or the cost of joining a performing rights organization as a singer-songwriter or producer. Becoming a member of the American Society of Composers, Authors and Publishers (ASCAP) as a publisher there will be a one-time fee of $50. As a songwriter it is free to become a member of Broadcast Music, Inc. (BMI), to start your own publishing is a one-time fee of $150 for individuals and $250 for companies. SESAC is by invite-only
Interest Income
- Interest Income is earned from investments that pay interest such as a (high-yield) savings account or a Certificate of Deposit (CD) account from a Bank or financial institution unlike Dividend income which is based on a company’s common stock or preferred stock.
How Can I earn Interest Income?
Open a savings account or CD
(Certificate of Deposit)
Whats The Cost To Be My Own Boss
In order to earn this type of income you will need to open a high yield savings account. HSBC offers a 2.05% APY but $100 minimum to open an account while Vio Bank offers a 2.02% APY. CD’s have a higher interest rate than savings accounts and can be priced from $0 down up to $2000 minimum. Banks, credit unions, financial institutions that have online savings accounts like CIT Bank and Ally offer a multitude of options. Prices and interest rates vary. NerdWallet is a great resource and will give a recommendation as to where to go to open an account.
Dividend Income
- Dividend Income refers to any distribution of company earnings to shareholders from stocks or mutual funds you own and is a income made from investing in common or preferred stocks of companies that payout dividends. Dividends received are not considered gains but rather income for that tax year. Tax rates differ based on whether they are ordinary or qualified.
How Can I earn Dividend Income?
Buy stocks from companies that pay dividends
Whats The Cost To Be My Own Boss
Dividend income is based on the price of the stock you purchased. In my case the lowest I have paid for a dividend stock was $4.85 a share. I purchased 2 shares and thus far I have received a dividend payment of $0.03. This would be $0.06 if I purchased 2 more shares. Robinhood is a powerful tool for dividend investors just starting out with a small amount to invest. MotleyFool has a great detailed article called dividend investing for beginners which is a must read. MoneySprout also has a great article with a bunch of Dividend Stock Tips
In Conclusion
In the new decade there will be a lot more types of income sources created, including new categories. For instance, AirBNB “flipping” seems to be all the rage now. I believe it’s when you rent out someone else’s property whether for them or unbeknowst to them for a profit. Assuming that profit is shared when the property owner is informed.
In future posts, we will discuss multiple ways to make money online and off. From building websites and apps, affiliate marketing, gig work, remote work and more.
Please note that I am not a financial adviser and therefore I am not giving anyone financial advice. I am primarily a researcher as well as a risk taker. I am sharing what I know and my experiences thus far after doing my own research. Which I highly recommend you also do. Please do your homework before any type of investment. Ask yourself all the necessary questions before making the leap. Always remember that if it sounds too good to be true . . .
