May be the type of income that you earn is limiting you from reaching your financial goal

Sun, Sep 29, 2019 8:29 AM on Exclusive, Latest, Stock Market,

In a world where people keep claiming one should not run after money, very few acknowledge the power of money. That is probably the reason why number of poor people outnumbers the number of rich. “Don’t run after money” is a statement that often comes from the wealthy and the fulfilled ones in the society. However, until and unless we realize how often money can help to address issues in our life, we won’t be able to live a happy life. Of course, money can’t buy happiness but it can surely reduce our problems if we want to achieve a healthy life, quality education and basic needs.

As we discuss about money, one of the major factors that is related with money is our earnings or income. Income is basically earning received in return for providing products or services by an individual or business. Our financial status quo often depends on our income. However, is our day to day income only responsible to define our status quo? Is our regular salary only accountable for upgrading our status quo?

In order to balance our financial status, it is necessary we balance our income and expenditure. However, it is equally important that we manage the types of income. Let us understand what does balancing types of income mean.

Basically incomes are of two types: Active Income and Passive Income. Active income refers to the kind of earnings which requires your day to day effort. For instances, wages, salary, commissions, business incomes, etc. On the other hand, passive income refers to the kind of income in which money works for you. For instance, it is the kind of income that comes from activities we were involved for a short period of time and requires less effort to maintain yet provides income stream for quite a long period of time. For example, rents, return on investments, limited partnership in a business.

So, which income should we focus on expanding? The answer to this question depends on our financial goal and our lifestyle. For instance, where do we see ourselves in the next 15 years? If we think ourselves living a life with financial freedom, then our focus should be in maximizing passive income. Now, what does financial freedom mean? It basically means that the need for money won’t control the way we live our life. For instance, in next 15 years, if we see ourselves travelling the world, working for a cause then in order to fund our living we need to have an income stream that will cover our cost even though we can’t put our energy on a specific work. In Nepal, real estates, rents and retirement funds are the very common passive income sources that people rely on in order to get the other half of their life going. Nepalese youths can also rely on stock market or act as an insurance agent in order to boost their passive income. Several Youtube channels are in trend in order to access the financial freedoms that millennial have been wanting for their future.   

On the other hand, there are a lot of people who want to stay engaged throughout their life. These people depend upon active income source throughout their life.

However, at some point passive income does play a significant role. Passive income simply does not serve the purpose of financial freedom. It equally serves an important role in the case of financial emergency. A check and balance between the types of income that you are earning is a must to meet the financial goal that you have set up for yourself.

Some of the major sources of passive income that youths can have in a longer period of time are:

  • Dividend payments: Although Nepali stock market is not in its bullish trend at the moment, however, someone at his/her twenties can buy stocks and earn dividend over the course of year.
  • High interest savings account: We often deposit our money in a certain savings account and rarely check on the interest it has been providing. However, in order to earn a decent passive income our focus should be on high interest yielding savings accounts. Yes, this approach might not be largely applicable in Nepalese banking scenario. However, if we see our neighboring country, India, a lot of online banks are providing higher interest rates than physical banks.
  • Insurance commission agent: In Nepal, insurance industry is growing. A lot of insurance companies are coming up with a number of products. So, in order to have hold of passive income, one can also have an insurance commission agent as a side job.
  • Youtube ads: A lot of earnings can come through youtube. Youths in Nepal are increasingly creating youtube channels. So, in order to earn passive income, one can also decide to use youtube as the platform.

Often passive income is perceived as free money falling from the sky. However, in order to earn passive income, one needs to harvest the seeds in one’s early age and reap the benefit in the latter part of life.