People want money
I recently spoke to someone on Twitter who confronted his financial advisor about the exceptionally high commission on their entire fund value. The FA eventually just shrugged and said: “Well, we all need to live!”.
This is true – we all need to live.
And we need money for living.
People want to get paid. Whether it’s through active or passive means, they will go to great lengths to get more cash.
In this article I want to explore where this money comes from – how people get paid.
Active and passive income
I am sure you’re fully aware of the difference here, but I do feel it important to explain.
Active income is something you need to do to make money from it. You need to sell your time, expertise or manage people to get a salary or money into your bank account. Examples of these include your full-time job, sales commission and reselling of products (with you needing to be there to do it).
Passive income is the best – you do nothing, and the money keeps rolling in.
This is where your money works for you to make more money babies – it frees up your time to do what you want to do.
Examples of this include investing in the stock market, investment properties that are managed by an agent and capital gain from selling an investment.
Active Income streams
For most of us, we need a job.
We actively exchange our time for money – and this is okay.
Our job will offer us money, sick leave, annual leave and the security of not being able to fire us tomorrow for no apparent reason.
If you’re a contractor, you would either sell hours or negotiate a monthly paycheck.
A contractor is normally employed for a certain period, or on a (monthly) retainer.
Due to the risk of losing your job overnight, often not having any sick leave nor holiday included in their package – contractors get paid premium rates.
Self Employed / Business
As a self-employed person, you also get no sick leave or holiday. If you take leave, you don’t get paid.
The awesome thing is that it often frees up your time. Some self-employed people work day and night – but reap the benefits financially.
Many people get a commission on sales, introducing two people to a business transaction and so forth.
Though almost passive by times, the individual needs to actively connect the people and make the sale through phone calls, etc.
The commissions are normally sizeable. An example is a real estate agent gets paid when a person they introduced to a property and actually buys it.
Passive Income streams
Let’s get into the fun part.
If you would buy something and sell it for a bigger profit a few years later – you would be able to make a nifty profit!
Examples of this include property, gold and stocks. People hold these for a few years, and when the time is right, will sell it for a profit. Remember you will need to pay taxes on your profits!
When you buy stocks in a company and the company is making a good profit, they may decide to pay out a dividend. This is a little thank you (or profit-sharing ) to the shareholders.
These can range from nothing to quite a bit of money.
If a dividend gets paid, it would generally be around 6-12 % of the stock price.
This is an easy one – you save money in a savings account at the bank, such as a 32-day notice account. The bank will pay you interest on the money you invested.
Royalties and licencing
Though not for normal people like you and I, many companies and people make money through licensing patents, technologies and photographs. Here are some examples:
- Photography – when someone uses your photograph, they need to pay royalties. There was a case in 2018 where a monkey grabbed a camera and took a selfie. PETA (People for the Ethical Treatment of Animals) took court action that the monkey owned the rights and royalties!
- Software is often white labelled (the logos took out) and resold to different corporate clients
- Big companies such as Apple and Samsung make (and pay) exorbitant royalty fees!
Though the dodgiest form of irritation this side of the dark web, many websites have a fair amount of ads where they get paid when people click on the ads.
Other opportunities include partner programmes where you advertise a third-party product on your site and get paid if they buy it (e.g. Amazon products).
Rental income (with a managing agent)
Though some people decide to manage rental property investments themselves, true passive income is achieved when the owner is not involved at all.
The rent is paid to the owner, for which nothing is done at all – someone else is managing the property for the owner.
Other non-money ways of getting paid
I know that time cannot be quantified in monetary terms, though I believe that it’s the one resource we can never get back.
We need to value it when we get paid in time off, freed up time to spend with those we love and to do what we value.
Remember – our world loves exchanging time for money.
Time is something you can never get back.
If at all possible, try generating passive income rather than sacrificing your time for money.
Frugal Local runs his own company (Effectify). He does software development and helps small businesses and startups with digital solutions. He enjoys writing articles and simplifying complex things – such as the article you’re reading!