Types and
Concept of
Income
Presented by:
Sam Cedrick H Calites
INCOME
3 Types of Income
• Earned Income
• Portfolio Income
• Passive Income
Earned Income
• Any income that is generated by working
• Obtained from working for
someone or a company
• Activities that generated earned
income:
• Working a job
• Owning a small business
• Consulting
• Gambling
• Any other activity that pays
based on time/ effort spent
Earned Income
• Pro:
• Don’t need any star-up capital in order to make
earned income
• Cons:
• Once you stop working, you stop making money
• Because the amount of money that is made through
earned income is directly proportional to the time
and effort you spend working, it’s difficult for
someone to make more earned income without
either learning a new skill or working longer hours
• Earned income is taxed at a higher rate than any
other type of income.
Portfolio Income
• Income generated by selling an investment
at a higher price than you paid for it
• Income generated from business
• Activities that generated portfolio
income:
• Trading paper assets (ex: stocks,
bonds)
• Buying and selling real estate
• Buying and selling and other assets
(ex: antique cars)
Portfolio Income
• Pros:
• Once you have the knowledge and experience
to generate portfolio income regularly, you can
continually reap the benefits by reinvesting after
each sale.
• Cons:
• Takes a good bit of knowledge and experience to
learn how to make money trading paper assets
• Have little control over your investments
• Generating portfolio income generally requires
you to have money to invest upfront
• Portfolio income is often taxed at very high rates
Passive Income
• Money you get from assets you have
purchased or created
• Income generated from investments
in paper assets.
• Activities that generate
passive income:
• Rental Income from Real Estate
• Business Income
• Creating and Selling Intellectual
Property
• Affiliate or Multi-Level Marketing
Passive Income
• Pros:
• Recurring income
• Allow the owners active control over the
investment
• Allow for the most favorable tax
treatment
4 Basic Ways to Earn Money
1. Employment – When an employee works fro
an employer and gets wages/salary in
return.
2. Self-employment – This means working for
yourself that can earn you money.
3. Business – This implies having a set
establishment or system that can churn out
money for an individual.
4. Investment – This involves making money
out of money or in other words making
money out of the accumulate capital.
Various Factors that Affect
Income
• Career Choice
• Education
• Skills
• Economic Conditions
Occupational Necessities:
Class Activity
Imagine the world had to start all over.
All that exists are water, land, trees, animals
and 50 people whose ages range from 10 to
50.
50 people, including yourself, are put you in
charge of selecting the seven most
necessary occupations to get the world
going again.
No training for any of these occupations is
necessary.
Skills
• Earning power is the ability to earn
money in exchange for work. How
much you earn depends on the value
of your skills in the marketplace.
• An individual’s value as a worker –
the wage or salary received for a
specific job – is related to the skill
level and education of the worker, the
demand for that work in society, and
the availability of qualified workers.
Education
• Generally, in our
society, people with
higher education and
more skills earn more
money on the job than
those with less education
and fewer skills.
Disposal Income
• Examples:
• Taxes
• Government transfer
payments
• Employee benefits
Taxes & Disposable Income
• Taxes provide money for the government
to operate and provide services to you and
others.
• Lower the disposable income we have left
for our own wants and needs.
Employee Benefits &
Disposable Income
• The money is taken out of your pay
check before your earnings are taxed
• Tax-Deferred Plan: means that taxes
due on the amount invested and/ or
its earnings are postponed until funds
are withdrawn by you to use usually
at retirement.
