Linear Income
This type of income is what you get when you trade time and effort for money. 90% of people from around the world have this kind of income. Other terms for this are: paycheck, salary, “sahod”, “sweldo”, among others. You receive this income based on how much work you do regardless of the outcome. Usually, the amount of work done is measured in the number of hours per week (normally 40 hours per week minimum). There’s nothing wrong with this type of income. However, it is a limited income. You only earn as long as you have time (and there are only 24 hours a day and only one of you).
Groups of people who fall into this Income Type:
1. Employees – employees receive a salary every month (normally every 15th and 30th of the month). Sure enough when an employee stops working he/she stops getting a salary
2. Real Estate Brokers/Agents – these people get a commission for every property that they sell. Technically speaking they are not paid based on the amount of work that they do but on the number of properties that they sell. But what makes this group earn a linear income is that when they stop selling properties, they also stop earning.
3. Salespeople – same as the real estate brokers/agents
4. Professionals – Experts in their fields are in this group (such as doctors, lawyers, dentists, architects, engineers, etc). These are the people who take Phd’s, Master’s Degrees, MBA’s and other higher courses. They constantly improve their knowledge in their respective fields such that they will be hired either as highly paid employees (whose income is derived from salary) or as consultants. As consultants they are paid by the hour, the rate depends on the degree of expertise they offer. When I was at UP most of my classmates dreamed of becoming such because as they say even when a consultant answers the phone he gets paid for the minutes he spend talking to the client. As with the other groups when a professional stops working, he/she also stops earning.
5. Small business owners – These people believe they are entrepreneurs because they own a business (?). However, what they do not realize is that the business owns them. Why? Because they are the system of the business; when they leave for a vacation or get sick, the business slows down, or worse falls apart (thus their income stops). Owners of small businesses have no (financial) capability to hire a CEO to run their business. However when I say “small” business, I don’t mean the size of the assets or the capital, what I mean is the size of the system. Small businesses don’t have a good system in place such that they demand too much time from the owner/s. Although it’s good to start with a small business, the problem lies in the fact that having a small business and being called the President of your own business is addicting such that you can’t delegate the management to another and thus you forever are the employee of “your” business.
Leveraged Income Or Passive Income
Leveraged or Passive Income, on the other hand, comes to you, even if you don’t do anything, forever. Who falls into this income type? – The Wealthy. They do this by building real businesses. The people in this category have at least 500 people either working for them (as employees) or working with them (as partners). That is the very reason why it’s called leveraged income – they leverage it. Then the Wealthy put their excessive leveraged or passive income to Strategic Investments where they earn more and more passive income.
The Wealthy started building their leveraged or passive income by growing their network instead of growing their expertise. While “Bright Kids” collect diplomas and certificates from Seminars, the Rich Kids collect business cards and build relationships. They know that later on in their quest for Wealth, these relationships will be a big factor.
Henry Ford: “I have a row of electric push-buttons on my desk, and by pushing the right button, I can summon to my aid men who can answer any question I desire to ask… Now, will you kindly tell me, why I should clutter up my mind with general knowledge, for the purpose of being able to answer questions, when I have men around me who can supply any knowledge I require?”