7 types of income — supplement your salary!

Income dispersion is important. Below we will analyze the 7 basic types of income that you can add to your life.

Income 1: Salary

The basic and most common type of income is salary.

The salary is the reward you receive in return for your time, your knowledge, or your skills. A company, a state or public body, needs your knowledge and capabilities for a certain period of time and in return gives you a fee, your salary.

Your salary ultimately depends on how easily you can be replaced. This in turn depends on your knowledge, skills, or other characteristics. For example, if you have acquired specific accounting knowledge it is more common to have a better salary than someone who does delivery. Why; Because it is more difficult to find a person with specialized accounting knowledge than a person with a motorcycle diploma.

Advantages

Salary is a fixed income (daily, weekly or monthly). You can earn it quickly, that is, from the moment you start working the expectation is that you will be paid after a short time.

Disadvantages

It is seldom scalable, meaning it can grow easily and relatively quickly. To increase your salary you may have to wait for a promotion or a job change. It all depends on your skills and your time. Even if you get increases, again and again, it is very difficult to reach very high incomes just from your salary

It usually has higher taxation than other types of income. The real purchasing power of wage income can easily be affected by inflation.

Income 2: Copyrights

The next type of income is based more on the result of the work and not on the hours you exchange for it. These are the Copyright Rights (Royalties).

Copyright can cover everything from writing a book or a song to technical or technological patents. In this type of income, you do the job once and then get paid to exercise the rights that this job generates.

For example, if you are a graphic designer, you can create icons, fonts, or other graphic material and upload it to online platforms. Anyone who wants to use your material will pay an amount to you without having to re-work that graphic design.

Advantages

You do not need to spend extra time, in addition to your original job, to receive a higher income. If your intellectual property is popular then you can increase your royalty income very quickly. It is scalable, for the above two reasons.

Disadvantages

It takes a lot of effort and patience to make a lot of money. For example, you can write a book for 2 years before you publish it and receive any income from it.

It does not always depend on you. For example, your writing talent may not be recognized or your book may not be popular, so your royalties may be low.

Income 3: Capital Gains

Capital gains are created when we sell a product for more than it cost us to buy or manufacture it.

This category includes profits from the sale of real estate and shares. For example, if we buy a demolished property for € 80,000 and invest another € 20,000 for renovation, it means that we have invested a total of € 100,000. If from the renovation we managed to increase its value and sold it for € 130,000, it means that we just made € 30,000.

The same can happen with stocks. If we buy a stock when its price is low and sell as soon as it rises, we keep the difference as a profit.

The same can happen with stocks. If we buy a stock when its price is low and sell as soon as it rises, we keep the difference as a profit.

Advantages

Depending on the type of investment it is scalable because you can run several investments at the same time, especially if it is done with leverage, ie borrowing.

Making the right investments can quickly increase your income Investment prices often go hand in hand with inflation, so you have a lower risk of losing out on it.

Disadvantages

You need specialized knowledge, if you do not know what you are doing you are likely to lose a lot of money

Even if you have the knowledge you take the risk of investing from running the investment to the ups and downs of the respective market — demand

You need to have the necessary capital to invest and make a profit

Income 4: Rents

One of the most popular and easy-to-understand types of income is rent. It is the income that is received in exchange for renting some of your assets, usually real estate.

Advantages

The positives of rents include the fact that they are scalable and quite safe investments. The real purchasing power of rental income usually follows inflation, ie rental prices go up with it.

Disadvantages

Contrary to what we have in mind, it is not 100% passive income. You shoulder the obligations that come with the management of each asset. In the case of real estate, stories with bad tenants who neglect the property or are late in paying, damages, taxes, etc. are very common.

To get to the point of having an asset to take advantage of the rent you have to create or buy the asset. This requires available capital.

Income 5: Interest

The easiest and simplest mechanism for passive income is none other than the collection of interest. You receive interest when you have bank deposits or when you lend to states or companies through bonds.

In the first case, you save your money on time deposits and receive interest from your Bank. In the second case, you buy government or corporate bonds that pay interest and at maturity return their nominal value.

Advantages

The positive of the interest is that they are 100% passive income, ie you do not need to do anything more than the initial effort

It has a low risk because you have your money in the bank or when you lend to creditworthy states or companies

It usually has a fixed rate of return so you can easily plan your finances

Disadvantages

On the contrary, their main disadvantage is that they have a low return corresponding to the risk you take.

The real purchasing power of interest income can be easily affected by inflation, as it is relatively stable as opposed to inflation.

In the case of deposits, you will have to “close” your money in the bank for some time to receive interest. This means that you may miss out on lucrative opportunities.

In the case of bonds, in order to have higher yields, you can choose less reliable companies/states which means that there is a greater risk of them being in the bankruptcy zone and losing your capital.

Income 6: Dividends

Most people when they think of stock only think of the capital gains we analyzed earlier. That is the difference that results from the purchase and sale of a share.

But we must not forget that shares are a share in the ownership of a company. As a shareholder of the company, you have the right to participate in its profits. If the company has profited at the end of the year it can pay dividends, ie payments made to shareholders depending on the number of shares they hold.

Dividend frequency varies from company to company. It can be every 3 months or once a year. Not all companies distribute a dividend, while some only distribute an extraordinary dividend.

Advantages

If you are a shareholder in many companies that pay a dividend you can have a relatively stable income You enjoy additional capital gains if your stock prices go up. There are cheap and automatic ways to reinvest dividends in stocks and escalate your income effortlessly.

Disadvantages

It requires knowledge of the right choice of shares to avoid the risk of losing dividends and your initial capital

Dividends are paid only in the case of a profitable company. So they are affected by the performance or value of the company or the performance of the economy as a whole.

Income 7: Business

Business income is usually the best return. You are essentially investing your time and money to start a business earning profits and extra income.

Advantages

The main advantage of business income is of course the return on investment, it can surpass any other type of income.

In addition, you can greatly influence the course of the business as opposed to just having shares in a business. For some, the pleasure and sense of creativity it offers are irreplaceable.

Disadvantages

Business is accompanied by the highest levels of risk. The percentage of micro-enterprises that manage to survive and generate profits for shareholders is particularly low. It takes constant effort, the right business choices, and knowledge and it may not be an activity for everyone. Despite your best efforts, the financial environment and competition can affect your profits and then your business income.

In summary, multiple sources of income offer peace of mind as you do not depend on a single source of income. Think how devastating it is for a family to lose the only salary that sustains it. But if this salary was only 20% or 30% of the family income, things are less painful.

Securing multiple sources of revenue can give you the freedom you are looking for.

But managing multiple revenue streams can be complicated and stressful. The best tactic for most is to start with one or two sources of income, depending on their skills and circumstances. Once you stabilize and receive the desired income, you can add even more resources.