| Part of learning to become financially free is to begin | | | | payments usually come monthly, and require little or no |
| to understand that there are three different types of | | | | work for you to receive them. Some types of assets |
| income. They are: capital gains, passive income, and | | | | that produce passive income are rental properties, |
| earned income. They are the three types of ways to | | | | dividend stocks, and businesses. Assets that produce |
| make money, and are very easy to understand. | | | | passive income continue to do so until the asset is |
| Capital Gains - When you buy a stock, and sell it for a | | | | liquidated (sold). Passive income is what makes a |
| higher price, you have made a capital gain. If you buy a | | | | person rich. If a person has more than enough passive |
| house and then later sell it for a profit, you have made | | | | income to cover his or her expenses, that person is |
| a capital gain. If you buy an antique at a low price and | | | | rich. |
| then sell it for a nice profit, you have made a capital | | | | Earned Income - Earned income is the primary source |
| gain. Capital gains are not passive income. They are a | | | | of income for most American's today. Any type of job |
| one-time payment that you receive from an | | | | that pays an hourly wage, pays earned income. |
| investment because your investment has increased in | | | | People who rely only on earned income, pay the most |
| value. Investing for Capital Gains is great because you | | | | taxes. Federal, State, Unemployment, Social Security, |
| can keep your money moving, instead of just letting it | | | | and Medicare taxes are all deducted from a persons |
| sit in the bank. The government loves to tax capital | | | | paycheck. With passive income and capital gains, the |
| gains, especially if you bought and sold your investment | | | | types of taxes you pay (if you have to pay any at all) |
| in less than one year. Lets say you buy a stock, and | | | | depend on your investment. Earned income is not |
| the stock doubles in price during the week so you | | | | necessarily a bad thing. Having a job or career is a |
| decide to sell it. You've made a nice capital gain, but | | | | great way to earn the capital required in order to |
| the government could take as much as 35% on that | | | | create assets. |
| capital gain, depending where you are in the | | | | Almost everyone who starts his or her own journey to |
| income-tax bracket. If you hold onto your investment | | | | financial freedom begins with earned income. Relying |
| for a year or more, the government rewards you with | | | | solely on earned income should be temporary. In |
| a more favorable capital gains tax rate. | | | | America today, many people rely on earned income |
| Passive Income - Passive income is payments that | | | | alone, and saving most their earned income for many |
| you receive from the assets you have created. These | | | | years until they retire. |