In the beginning, nearly everybody starts off working for earned income. Every person on earth starts out with a poor understanding of money. Each time you find money in your hands, you make decisions on how to spend that money. The quality of these decisions depend on your understanding of money. These decisions determine weather you will be rich, poor, or middle class. It is only through persistent effort that your knowledge and understanding can be increased.
Working for earned income is the first rung on the financial education ladder. It requires very little financial education and usually requires 40 hours/week. People who spend their life focused on earning income limit themselves to the poor or middle class. The poor work to earn an income, which they spend completely on expenses. The middle class also work for an income, which covers their expenses, liabilities (mortgage), and retirement savings (portfolio).
Rich people do not work for money, they have money work for them (passive income). They replace their earned income with streams of passive income. More specifically, they manage businesses and real estate. The process by which you convert earned income to passive income is called investing. Your degree of knowledge and understanding determine the success or failure of your investment plan.
The degree of knowledge and understanding you have are related to the amount of time you invest into learning and increasing your knowledge. Rich people may or may not also have portfolio income, but this is not how they become wealthy.
Therefore, if you want to become wealthy, you need to begin learning more and increase your understanding and ability. This will lead you down one of two paths, depending on your ultimate goals…
Portfolio income
Passive income
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