Diversify Your Income: The 3 Types of Income You Need to Know

The three types of income are earned, passive, and investment. Understanding the differences between these types of income can help you plan for financial stability and make informed decisions about your sources of income.

Earned income is the most common type of income and refers to the compensation received for performing a service or job. This can include salaries, wages, and commissions. For example, if you work as a teacher, the salary you receive is earned income.

Passive income is income that is generated without the need for active work or effort. This can include rental income, dividends from stocks, or income from a business in which you are not actively involved. For example, if you own a rental property and have a tenant, the rental income you receive is passive income.

Investment income is income earned from investments, such as interest from a savings account or dividends from stocks. This type of income is not received in exchange for a service or job, but rather is generated through the ownership of assets that produce income. For example, if you own a portfolio of stocks and receive dividends from those stocks, the dividends you receive would be considered investment income.

It's important to diversify your income streams, as relying on a single source of income can be risky. By having a mix of earned, passive, and investment income, you can create a more stable financial foundation.