In order to achieve financial freedom, you need to understand how different types of income work.
Many people understand income simply as a salary paid by a company. In fact, more than 90% of people living in the world have no other income other than this salary.
The book “Rich Dad, Poor Dad” by Robert Kiyosaki presents different income quadrants, and accordingly, economic entities can be classified into one of the below four statuses:
1) Employee
2) Freelancer/Self-employed
3) Business Owner/Entrepreneur
4) Investor
Just by looking at the classification, we can see how they make money. Based on the classifications above, there are four main types of income.
1) Active income (Employees)
This quadrant represents the wage income earned by spending time. In other words, employees exchange time for money.
This is the easiest and most common source of income for a lot of people.
To put it in a formula:
Income = 1) Hours worked X 2) Hourly wage
In order to achieve financial freedom, I am using this active income to generate other income for which my time is not required for.
2) Making money with one-time effort (Freelancers/Self-employed)
Second, there is passive income, in which if you put a lot of time and effort in the beginning, you can generate continuous income thereafter.
Examples include online lectures, e-books, copyrights, blogs, and YouTube.
It takes a lot of time to generate revenue, but once established, they become income pipelines that continue to generate revenue.
3) Money makes money (investors)
Third, money makes money. Investments in stocks and real estate are common assets that grow in value.
Investments that can generate steady cash flow include dividend from stocks, interest payment from bonds, and rentals from real estate.
4) System makes money (Entrepreneurs)
Finally, the system makes money. It is usually done by starting a company, but it is possible to start a small business.
For example, there is a platform business.
If I start a blind date application and it goes well, every time a payment by users comes in, it all becomes my income.
In other words, if I hire only people to maintain the minimum server/IT system, income will continue to come through the platform I have created with minimal maintenance efforts to sustain the platform.
In the next article, I will write these four things in what order and how to prepare them.
You can find the same Korean article from this link.
