Earned Income

Your main goal largely determines your focus. If your main goal is to cover your expenses, then your focus will be on increasing your earned income. If your next concern is how you will afford retirement than you will probably save a portion of your income for your retirement costs. In order to afford the retirement savings, you again focus on increasing your earned income.

Working for earned income is the first rung on the financial education ladder. It requires very little financial education and usually requires 40 hours/week. People who spend their life focused on earning income limit themselves to the poor or middle class. The poor work to earn an income, which they spend completely on expenses. The middle class also work for an income, which covers their expenses, liabilities (mortgage), and retirement savings (portfolio).

Rich people do not work for money, they have money work for them (passive income). They replace their earned income with streams of passive income. More specifically, they manage businesses and real estate. The process by which you convert earned income to passive income is called investing. Your degree of knowledge and understanding determine the success or failure of your investment plan.

The degree of knowledge and understanding you have are related to the amount of time you invest into learning and increasing your knowledge. Rich people may or may not also have portfolio income, but this is not how they become wealthy.

Therefore, if you want to become wealthy, you need to begin learning more and increase your understanding and ability. This will lead you down one of two paths, depending on your ultimate goals…

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