Sources of Income – Salary, Rental & Other Incomes

Money comes in many forms. The path to wealth is rarely paved with a single paycheck. It involves dragging multiple "pipes" of income into your tank.

Classification of Income

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1. Active Income (The Starting Point)

Income received for performing a service.

• Pros: Immediate, Predictable, Lower Risk.
• Cons: Not Scalable. You only have 24 hours. If you fall sick, income stops.
• Examples: Job (Salary), Doctor (Consulting fees), Uber Driver (Wages).

2. Passive Income (The Goal)

Income earned from assets you created or bought.

• Pros: Scalable. You sleep, money comes.
• Cons: Requires high initial effort or capital.
• Examples:
  • Rent: Residential/Commercial property.
  • Royalty: Books, Patents, Music.
  • Digital Products: Online courses, YouTube ad revenue.

3. Portfolio Income (The Accelerator)

Income "paper assets".

• Dividends: Share of profit distributed by companies (e.g., ITC pays dividends).
• Interest: From FDs, Bonds, PPF.
• Capital Gains: Buying a share at ₹100 and selling at ₹150.

Comparison: Income Types

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Case Study: Diversification Saves the Day

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Exam Notes: Writing the Answer

Question: "Classify the sources of Personal Income." (10 Marks)

Structure:

1. Active Income: Define + Examples (Salary/Profession). Mention "Time for Money".
2. Passive Income: Define + Examples (Rent/Royalty). Mention "Asset based".
3. Portfolio Income: Define + Examples (Dividends/Interest).
4. Conclusion: "A healthy financial plan aims to migrate from Active to Passive income."

Summary

• Active: Good for starting, bad for finishing (retirement).
• Passive: Hard to build, easy to maintain.
• Portfolio: The result of successful investing.
• Rule: The average millionaire has 7 streams of income.

Quiz Time! 🎯

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