In keeping with the theme of the current wealth creation series I am doing, to coincide with the start of  new financial (tax) year 2010 -2011, I thought I would write about the various income models one can use to create wealth.

What Are Income Models?

They are the various ways an individual can create revenue. I use the term ‘create’ rather than ‘earn’, because it is not always about earning an income but creating one. And this can be done passively, recurring, and/or by using leverage. I write ‘and/or’ because, as I will go on to explain, you can use all the aforementioned models to create an income in conjunction with each other or as a stand-alone. If you are use more than one model or the same model twice or more, then this is called ‘a multiple income stream’.

Four Basic Income Models

Earned Income is what is generally referred to as a wage. It is the direct exchange of time and money. In other words, the trading of your time for money; i.e. you work 8 hours, you get paid 8 hours…if you don’t work, you don’t get paid! A job is a perfect example of this, as well as a business, where you are the sole trader, such as a plumber, doctor, lawyer, etc. Thus, you have to be there in order for it the business to function and you earn a wage.

Residual Income is an income model, where you only have do the job once – albeit correctly, but by doing so you gain financial profits from it over and over again without any further effort on your part.  Ultimately a recurring income where you only had to do the job once! Royalties, a percentage of a previously sold product that has a re-occurring income i.e., insurance, a monthly membership product/service, property returning a rental income, and weekly or monthly subscriptions, are great examples of this. Also, legitimate network marketing/MLM and affiliate programs have proven to be a great method in building a solid residual income.

Leveraged Income is an income that you gain in conjunction with your own efforts and the combined efforts of others. A team, sub-affiliates in your affiliate programs, your downline if you are in a network marketing/mlm business, or your employees if you own a business and employ others to generate income towards your bottom line, are examples of this.

J Paul Getty, once the richest man in the world said, “I will rather earn from 1% of 100 peoples effort than from 100% of my own effort”.

The best way to envisage this is to imagine yourself being multiplied over and over again, and that each one of you is making YOU more money. It is ultimately the multiplication of your one effort! This is the power and attraction of leveraged income.

Passive Income is very similar residual income, however the key difference is that this type of income model doesn’t require your time, or very little of it, in order to sustain it. The best examples of this type of income is investments, high interest bearing accounts, search engine optimization activities, such as article, classified, and video marketing, all done virally and with a link at the bottom promoting a product or service. Again, a legitimate network marketing/MLM program, a product developed and sold through an automated system, your own affiliate program managed by a third party such as ClickBank, Share-A-Sale, e-bay, etc.

In order to become financially savvy it is important to be aware of these different models and apply them in your plan to become debt free and financially independent, especially in today’s economy. These models also correlate quite effectively with the article I wrote based on Robert Kiyosaki’s Cashflow Quadrant.  Ultimately, there is no right or wrong in what model you prefer but by understanding these different types of income, you can make a better decision concerning the way in which you want to make your money and create wealth, especially in these economic times, and a UK general election around the corner.

To Your Financial Success

Financial Educator & Internet Network Marketer

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