If you have read 'Rich Dad, Poor Dad' by Robert Kiyosaki you will be aware that there are three kinds of income streams. As an aside, it really does help if we use the water analogy with money because it gives us a sense that money flows through, in and out of your life, it's not static - although to employed people, looking at a pay check that never grows, it may well feel pretty static.

There is earned income flow, passive income flow and portfolio income flow.

We know about earned income, that's when we have to show up, do something, perform to a pre-arranged standard, stay somewhere until someone else says we can go home, where we have no control over the security of our jobs. But it's an essential income flow, especially in the early days of building our wealth, so it's best to try and earn as much as possible, while working somewhere where we can gain some skills, experience or contacts, that will help us in later life.

The interesting thing is, that most people don't imagine that they can have additional income flows if they have earned income. The thought of starting a business part time, or doing some network marketing for a product they love, or developing some intellectual property from something they know or are passionate about......this just does not cross their mind.

'I work too hard, I'm too tired' they say. At the risk of becoming very unpopular here - rubbish! There is a lot of dead time in anyone's day, time in the car, time on the train (commuting, while tiring, is great for this), time in the evenings, time at weekends. It's almost as if the action of earning a living lets them off the hook for taking responsibility for their own financial lives. Must be something to do with the employee mindset perhaps, but the good news is that you can grow out of it. The other difference is that when you are developing something for yourself, your energy levels rise dramatically!

People always say to me 'I don't know how you do it all' and yes, I know I do work harder than most, possibly too hard, but what people forget is that I enjoy what I do - actually I love it! So the line between work and fun/leisure blurs. Would I rather watch crap on TV or write my newsletter? Easy, every time. Except for ER, Tony and Marco the new chefs, any property programme and that new lawyer thing 'Trust' obviously.

Those people always imagine that they have to spend all of their spare time doing the 'other activity'. Not so. Just one hour a day will move you forward and in one year, you may have a very respectable other income. Colin Turner's book 'Swimming With Piranhas Makes You Hungry' is great for helping you clear out the clutter in your life to make room for other activities and very motivational too.

Actually, that's a common belief among people who are just starting out on their financial journey - that to do something well, you have to spend all your time doing it - that 'all or nothing' mentality. I notice it in myself a lot. And it manifests itself in taking no action at all, if one can't take the action that one thinks one would need to, to succeed. But in my experience, any action or even a little bit of action taken regularly, makes a world of difference.

But this is still earned activity. The next income flow you may experience is Portfolio Income. This is where you receive income from your portfolio of investments. Investments in the stockmarket, investment in businesses, investment in property. You may already own some shares and receive dividends from those shares. They probably get paid right back to the company to increase your shareholding, but it's still dividend portfolio income. Some people have so many shares they live on the income from the dividends.

I would count rent from buy-to-let as portfolio income and a salary / dividend from a family owned firm. Down line income from network marketing is portfolio income. In fact, anything where you have to invest a modicum of time, effort or knowledge still is portfolio income.

And the final type of income, the Holy Grail of Financial Intelligence, is Passive Income. True passive income can grow out of Earned Income and Portfolio Income, for example where you have so many buy to let flats that you hire a property agent or manager to look after them for you. You just turn up once a quarter, every six months or once a year to review the figures.

While I write this, I'm still beta testing it at present, but this eprogramme will develop into passive income one day. It grew out of earned income (the programme I use with my one-to-one clients) and it most certainly is earned income at the moment! Except while it's being beta tested I'm not getting paid for it - how mad is that? You try keeping up with a 150 strong R&D team on a 101 day programme - challenging is not the word. But great fun and the feedback is phenomenal and very heartening. If they didn't love it, they wouldn't complain when a day's nugget was late coming.

My website www.artistmanager.com is largely passive income as it makes me money without my having to do anything on a day to day basis. I think about it, and email my software designer with ideas for improving it, but that's pretty much it. It can earn up to #200 in a week at the moment, and if we drive up the traffic, then that will rise. Other passive income sources include book royalties, licensing fees from artwork, for greetings cards, scarf & wallpaper manufacture etc., and if you write a top selling hit song you are made for life.

How many people know that Dolly Parton made more money from the song 'I Will Always Love You' than Whitney Housten did? And Dolly didn't have to get out of bed once she had written it. Now that's a thought, isn't it?

 

© Nicola Caincross of The Money Gym 2008. No content to be reproduced without written approval of the author.

Nicola is a Wealth Coach, Author, Publisher and Speaker, and the Director of The Money Gym.

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