THE FIVE FORMS OF INCOME
THE FIVE FORMS OF INCOME
THE FIVE FORMS OF INCOME
09.06.2010 Posted in
MoneyThere are five possible areas of which you can derive an income. These are your job, investments markets, property, cash or fixed interest and business. The wealthy at least have 4 out of 5. The optional one with time is your job.
Your Job
Probably your current source of your income. If you don't work, you don't earn. As individuals, we often seek jobs with security. It's what our parents told us to do, seek a profession that was secure and stable. We all know there is no such thing as job security.
Unemployment is rising in the developed world. The current economic downturn means that every industry is not safe. It's time you develop other sources of income.
Property
In the world of property investing you can only make money in two ways either capital appreciation and/or positive income returns.
Capital appreciation is straightforward enough. Over time your property increases in value so that it becomes worth later than what you initially paid for it (this is also known as an increase in equity).
The only trick with capital appreciation is to remember that the amount you pay for a property is the contract price plus closing costs and the amount you receive when you sell is the sales price less agent's commission, your loan payout and other selling costs.
You can only turn your capital appreciation into positive cash flow by redeeming your equity through refinancing or by selling your property.
The second way you can make money in property is by securing a positive income return.
Positive income returns occur when your investment income is higher than your investment expenses. Strategies on property investing will be discussed in future articles
Investment Markets (Stocks/Options)
Similarly as to property, you can make money either as capital appreciation and/or with income through dividends.
Buy low and sell high, is a term often used with stocks. Buy these days with short selling, you can also make money with Selling high and buying low. Though this strategy is best left to the advanced investor.
Investing is stocks has historically been the best assets class to invest in. However, there is a danger of losing money quickly if you do not know what you are doing.
Investing strategies will be discussed in detail in future articles. Stay tuned.
Cash & Fixed Interest
Cash investments are the most common form of investment in the US, UK and Australia encompassing products such as bank accounts, term deposits and Cash Management Trusts.
The appeal is that they provide easy access to your money when you need it, and there's no chance you could lose any capital so they're very secure.
However, whilst they do offer security, they usually provide very little income and no capital growth. So they can actually be quite risky over the long-term because inflation eats away at the value of your investment.
Business
Imagine creating a business which earns you an income while being out playing golf, meeting up with friends or while you're sleeping. This should be part of your wealth creation your goal. Look at your interests, what you do well or what you're able to teach others. You may be sitting on an opportunity that can earn you a passive income.
Once you've find the idea, you need to think about how are you going to deliver your product or service. These days, an internet business is a way to get started with minimal outlay. We will discuss strategies on creating your online business in future articles.
THE FIVE FORMS OF INCOME
By: Perry Pearson
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