Building Wealth: Two Types of Income

If you want to build wealth, you must understand the two ways to produce income which I call Type 1 and Type 2.

Type 1 Income: “Work = Get Paid Money” & “Don’t Work = Don’t Get Paid Money”

  • A job where you exchange your time, talent, and energy for a paycheck.
  • Sometimes referred to as “aggressive streams of income”

Type 2 Income: “Get paid whether or not you are working.”

  • Your money produces more money without requiring you to work for it
  • Sometimes called “passive streams of income”

The wealthy are well aware of Type 2 Income. It’s why they have become wealthy.

Type 1 Income requires your physical presence and effort. It is how must of us learn to produce income from a very young age. We perform a task and receive compensation for it. In school we’re told time and again, “Study hard so you can get a great job.”

Each of us, however, is limited on the income we can produce using Type 1. Even if you are a doctor or highly compensated sales person, you are still limited by the hours of the day.

This is why it is important to move money generated from Type 1 Income activities into Type 2 Income producers.

You may already be doing this at some level without realizing it! For example, if you are contributing to your retirement savings plan, you have captured the power of Type 2 Income. The investments within your RSP (401k, 403b, 457, TSP, IRA) are working for you – producing growth and income – without requiring any additional work from you.

Recommended Resource

Joseph Sangl’s book: Oxen: The Key To An Abundant Harvest  Written for the person who is keenly interested in building up their Type 2 Income, this book will help you identify potential “Oxen” – investments – that will grow your net worth and position you for a fully funded life at retirement – perhaps at a much younger age than you think!

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