When earning an income you should ask yourself, “Will I keep a significant portion or only a little?”

How you earn money will determine how much you can keep. The more money you can keep, the more likely it will be for you to grow your wealth portfolio.

types of income

There are three types of income and how much you earn will differ for each. All three types of income are taxed differently.

Based on the type of income you earn, you might be able to reduce the taxes that you pay. Continue reading to find out how you can build your wealth.

1. Active Income

You’ll most likely be earning this income or start off with it. You earn this in an exchange of your time for money. The disadvantage of earning this income is that it is taxed significantly.

Employed or self-employed individuals who exchange their skills and time for a salary are good examples of active income. Oftentimes with this type of income, you barely have any money to invest after paying your monthly expenses.

2. Portfolio Income

You gain this second type of income by acquiring it via capital gains. This is normally from an investment in shares or stock portfolio.

While your taxes will be slightly reduced compared to active income, you still pay them. Once you sell your shares, the profit gained is going to be taxed as capital gains tax.

3. Passive Income

You can earn this outside of your day job, your shares, and stocks. You generate this when you leverage skills, resources, and talents.

A good example is you coming together with some business associates to purchase an apartment building. Even though the group of you might hire a property manager, you will still be earning an income.

Other great examples are royalties, investment in oil, energy and gas exploration. This type of income carries the least amount of taxes. The key is to invest in assets and let them work for you. This can get you, lifetime passive income.

4. Creating a Wealth Portfolio with the Different Types of Income

To create a wealth portfolio, you should combine all three types of income streams. You’ll more than likely start out with an active income but you can add a portfolio income and ultimately use the profits to invest in passive income assets.

The goal is to focus on investing too. This way you move away from using your time to get an income and leverage your assets to gain income instead. Also, be sure to learn as much as you can about taxes.

All these combined will give you the knowledge needed to build your wealth portfolio.

A Final Look

When you understand the different types of income you can make your money work for you. In this way, you can have more than one income stream. This will give you financial stability and peace of mind.

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