The Money Game

Posted by Lee Chee Keong on 29/12/2009 under Chee Keong, Finance | Be the First to Comment

“Money is a game. If you know the rules, you win; if you don’t know the rules, you don’t win”

- Robert Allen

Income can be categorised into 3 broad types:

1) Active (earned) income;

2) Passive income and;

3) Portfolio income.

Most people are familiar with only one type of income, that is, active income.

However, it is often the second and third types of income, passive income and portfolio income, that will help us accumulate wealth. That is perhaps one of the reasons there is a widening rich-poor divide? The rich knows the rules of the money game and concentrate their efforts on building passive and portfolio income streams.

In his book “Multiple Streams Of Income”, Robert Allen says that in order to be financially secure, a person needs to build multiple income streams, in the form of passive and portfolio income.

What are the differences between these 3 types of income?

Active income:

This is the type of income we earn as employees or self-employed (eg. a hawker). We exchange our efforts and time for money. The moment we stop working, our income stream gets cut off (aka. the rat race).

Passive income:

This is the type of income we get when we do the work once but get paid many times over. For example:

i) An author writes a book once and get paid royalties for many years, for every book that is being sold (eg. Robert Allen);

ii) An artiste performs once and have the performance recorded and made into CDs and VCDs, screened in cinemas and televisions, and get paid royalties for many years (eg. Michael Jackson);

iii) An entrepreneur builds a business system and, instead of doing all the work himself, he hires others (employees or other small business owners) to work for him.

Portfolio income:

This is the type of investment income we earn when we own securities, such as stocks and bonds. We get paid interests or dividends. There is also a potential for capital gains.

Have you been building your passive and portfolio income?

Related posts:

1. The Richest Man In Babylon
2. Conspiracy of the rich
3. Money, Banking and the Federal Reserve