If you are like most Rich Dad followers, you might place yourself in one of two groups – you are an active investor, or you are thinking of becoming an investor. If one of those describes you, I want to highlight a key principle for you. And also share an idea as a next step for you.
Investment rule number one is to always know what kind of income you are working for.
It’s important, but it’s not as hard as it sounds. There are three primary types of income that you should understand, after that, it gets simple really.
- Earned income, or income derived from a job or some other form of labor. Basically, it’s a paycheck. You can receive only as much earned income as you have hours to work, so your ability to build wealth in this way is severely limited—a dilemma that is compounded by the fact that earned income is also the most heavily taxed type of income.
- Portfolio income, or income derived from paper assets, such as stocks, bonds, and mutual funds. Portfolio income is by far the most popular form of investment income, since paper assets are relatively easy to manage and maintain as compared to physical assets. However, in some forms (e.g., stocks), the returns are highly unpredictable, while in others (e.g., mutual funds), their returns—while more predictable—are typically small or even negative.
- Passive income, or income that is not tied to a specific time or activity, and that can flow to you without any specific current effort expended on your part. The primary example of passive income, accounting for some 80% of this type of income, is real estate investment income. Not only can real estate produce significant financial returns that grow over time, but, because of its regular cash flow, it is also the most predictable form of investment income. Plus, it offers many valuable tax advantages.
It is for all of these reasons that real estate income is my favorite. It’s important that before you invest your time or your money, you be clear about the types of income and your goal. Don’t let your income decisions be based solely on your current knowledge, experience or fear – all those can be changed.
If you want my advice, I’d say you should STOP WORKING FOR MONEY.
Learn to make money work for you. Its really the key to taking control over your financial future.
To help you continue to explore the real estate investing, my team has prepared two free resources for you.
