Every person needs money to buy the services and goods that satisfy their daily requirements. And, you can earn those funds in the form of salary or income. Both share the same properties being the forms of monetary inflow acquired by one. However, everyone has one or the other source to receive these funds, and the purpose of spending might also differ.
Understanding the Terms – Income and Salary
Salary: A salary is a type of earning that one obtains in exchange for a service offered through a regular job to an organization. An employer pays a certain salary to his/her employees that is generally agreed at the time when a person is employed. This, along with other conditions, is also shown in the contract of employment. Generally, salary is calculated based on the period, like fortnightly or monthly.
Income: Income is a broader form of earnings also, referred to as passive income investments. It includes, but is not limited to, salaries, profits, investment income, dividends, payment receipts, and other sources. The total income that a person earns is generally taxable with tax rates depending upon the combined amount of income received from all the sources.
- Salary is one form of income that an employee gets from his/her employer in exchange for their work done in a firm. On the other hand, income has a larger scope, including other sources like dividends income, investment income, profits, interest for deposits, and sale of house, car, etc.
- Generally, salaries are more stable when compared to total income. Various sources of the latter depend upon the market fluctuations, changing interest rates, developments, currency changes, and firms’ dividend policies.
While salary is considered as a type of income but the vice versa doesn’t hold. Here are some sources of passive income that you can make for yourself.
1. Earned Income
This one’s a type of income that you earn by spending time or doing work as an employee. In other terms, you can say that you earn money from your job. And, with this, there are chances of quality of life suffering because you are likely devoting most of your time to generate money. For a major portion of the working population, jobs cover only regular expenses. That’s why there’s an expanded form of JOB (Just Over Broke). And, with not much time left after a job schedule, many people don’t even think of adding other income sources. Though you lead your life in a comfort zone, you also don’t always get to lead an extraordinary life. But practicing a list of saving tips for employees can help you build up a decent account that you can use to meet emergency or desired expenses later.
2. Profit Income
Profit is the difference between buying and selling costs. When a business sells products more than the costs involved in buying/manufacturing and other expenses of running the business, it makes a profit. And, those who start a new venture to earn a profit are referred to as entrepreneurs. Though setting up a business needs big investments, you can opt for a small business to start making profits with minute investment. This might take a considerable time to start filling your pocket until you don’t have some effective passive income ideas.
Entrepreneurs are the risk-takers who leave their jobs and launch businesses with a target of making lavish results. Most people who are doing the job and want to earn income, shift towards this category. However, it’s not an easy step and needs you to put in lots of guts to take risks. To start entrepreneurship and earn profits, you have to find the services or products that you can sell with interest. You also need to learn about managing clients, services, and products equally.
3. Interest Income
One of the good sources of passive income is the interest you earn on your deposits without getting actively involved after investing once. You can create this source by putting your money in the bank or by giving it to the government as treasury bills and other forms. It’s a true passive income investment when combined with the compounding power and also comes with the least risk.
4. Dividend Income
Dividend income is one of the greatest ways to make passive income andoffers better returns as compared to interest. Besides, it also makes you a company’s shareholders that you buy stocks of. Many companies decide and give a percentage of holding values to each of their shareholders at fixed intervals. And, most companies announce dividends at the end of the year. Though this stream sounds good, it is more neglected and ignored as an income source.
Making smart investment decisions can help you make a good income from dividends. Pick better blue-chip organizations and consider the past dates of their dividends given. With a well-researched one-time investment, you can make dividend income as one of your best investment returns to generate a good side income.
5. Rental Income
As the name indicates, rental income is the one you get from renting an asset such as a building. Though this one’s a better source in terms of returns and security, it comes with drawbacks. The major concern here is that you will need to make, maintain, and market your assets to generate the desired income. If you are not earning much to create an asset, earning rental income couldn’t be easy. And, another drawback of this source is the assets’ liquidity. In case of an emergency, it isn’t easy to liquefy the asset rapidly.
6. Capital Gains
Capital gain is the type of money that you earn from the increased value of an asset that you hold. It could be an equity share or any other. For example, if you purchase a share for $10 and then sell them at the price of $11, in this case, $1 is your capital gain. Another example is when you purchase a property (home) at the rate of $300,000 and sell it at $330,000, $30,000 becomes your capital gain. The tax laws are different at different places on capital gains. So, you should know where to invest money and how much taxes are levied to calculate your exact income.
7. Royalty Income
Royalty income is the money you make by allowing someone to use your processes, ideas, or products. The one who uses your product creates revenue by using your assets while you obtain a small percentage of what they earn. An easy to understand example of this would be Dominos. Suppose you have the franchise, you can send royalty to the company for using their logo, marketing, processes, etc. This turns out to be royalty income for Dominos.
In the case of Dominos, the largest challenge one faces is to make something special that others can use to make money. You will also require smart investment tips and unique skills to generate this type of asset. However, once generated, virtually, there is no limit to the money that you can earn.
Choose the Best Income Source for you
This makes the difference between salary and income clear, and you can create multiple income sources to earn more money. Understanding different sources and how to make passive income using them can help you lead a luxurious life. Based on your interest and knowledge, you can make mutual funds investment, use the property or other assets, or simply use dividends and interest as your second income source.