3 Types of Income Robert Kiyosaki??. #financialfreedom #rich #vpmotion #shorts #realestate

Introduction

#financialfreedom #rich #vpmotion #shorts #realestate

Robert Kiyosaki, the well-known author of "Rich Dad Poor Dad," often emphasizes an important principle of financial education: the wealthy do not simply work for money; they make their money work for them. Understanding this concept is crucial for anyone looking to achieve financial independence. In this article, we will explore the three types of income: earned, portfolio, and passive income.

Understanding the Types of Income

Earned Income

Earned income is the traditional income we all recognize—it's the compensation we receive from our jobs. When you work for a salary or hourly wage, what you earn falls under earned income. This income is usually subject to various taxes and is typically the first means through which most people generate revenue.

Portfolio Income

Portfolio income is derived from investments, such as stocks or bonds. For example, if you purchase shares of Apple for $ 10 and later sell them for $ 20, the profit you make is considered portfolio income and is classified under capital gains. However, there is an important caveat: if you sell these investments within a year, the gains will be taxed at a higher rate, just like earned income. To take advantage of more favorable tax rates, it's advisable to hold investments for longer periods, specifically over a year.

Passive Income

Passive income is the gem of financial education due to its favorable tax treatment and cash flow potential. Kiyosaki highlights rental properties as a prime example of passive income. When you own assets, such as real estate, the cash flow can become a significant source of income. Crucially, this income can often be shielded from taxes through depreciation—a mechanism that allows property owners to deduct the costs associated with the wear and tear of their rental properties. While passive income is not inherently free from tax, depreciation acts as a 'ghost expense,' helping reduce taxable income.

Conclusion

In summary, the journey to financial freedom involves understanding these three types of income. With the nuances attached to each, it’s vital to educate yourself thoroughly rather than taking financial concepts at face value.

Keywords

• Earned Income
• Portfolio Income
• Passive Income
• Investments
• Financial Independence
• Capital Gains
• Tax Treatment
• Depreciation

FAQ

1. What is earned income?
Earned income refers to the money you make from working a job, receiving a salary, or hourly wages.

2. How is portfolio income defined?
Portfolio income is generated from investments, such as gains from selling stocks or bonds.

3. What is passive income?
Passive income is revenue generated from investments or assets that require minimal effort to maintain, like rental properties.

4. How does depreciation affect passive income?
Depreciation is a tax deduction available to property owners that can help reduce the taxable income generated from passive income sources.

5. Why is understanding different types of income important?
Understanding the different types of income helps individuals leverage their financial strategies more effectively to achieve financial independence and optimize tax savings.