In my last blog post, The Truth About Money and Freedom, I discussed the difference between Absolute Income and Relative Income.
I started with this because at the end of the day, I believe it all comes down to lifestyle which is really measured by your relative income, because your lifestyle is given by both your time and your money….one without the other doesn’t work.
The most efficient way to increase your relative income is by simply keeping more of the money you make.
This is really all that matters. Most people get caught up in how much money they make.
The only thing I care about is how much money I keep.
When I read Rich Dad Poor Dad at the age of 20, it was the first book that introduced me to 3 different types of incomes.
- Earned Income
- Portfolio Income
- Passive Income
It’s extremely important to have a clear understanding because the tax code lets you know how each of these incomes are taxed, which means how much the government allows you to keep.
Earned income is income that is generated by working. Usually your salary or money is made from employment or as an independent contractor.
Portfolio Income is income generated by selling an investment at a higher price than you paid for it. This can include, but is not limited to, selling stock or real estate. This is also commonly referred to as capital gains.
Passive Income is income you get from assets you have purchased or created. This could be cashflow you receive from a rental property or cashflow you receive from a business that runs without you or cashflow you receive from your intellectual property.
Those that are focused on absolute income usually derive the majority of their income as earned income.
Those that are committed to maximizing their relative income focus on portfolio and passive income.
My goal has always been to maximize my relative income so I have spent the majority of my working years (since I was in college) focusing on passive income. Translation, I have not received a paycheck since my sophomore year in college.
In particular I’ve chosen real estate as the primary vehicle to produce my passive income because the tax benefits allow me to keep even more of money, tax free!
Check out this video from my Six Figures with Student Housing program, that explains how you can maximize the money you keep and incorporates the different types of income I spoke about in the last two blog posts.
I also show you an example of how you can make $100,000 tax free!
Quick disclaimer..remember I am not an accountant and you should always run this by your accountant or attorney.
Click the play button below and enjoy!