Creating Wealth – The Type Of Income You’re Making May Be Costing You The Most

+Hans Schoff wrote:

Creating wealth today is more important than ever as we shift more and more away from the old industrial age era to the information age.  While a high-paying job and the promise of good employer- or government-provided benefits was music to people’s ears in the previous era, today security lies in your ability to get financially educated so that you’re in control of your income and so that your assets are not gambled away by so-called financial brokers (ie, sales people) or eaten up by fees, taxes or inflation…

(For the previous post in this article series on creating wealth, follow this link: Is It Too Late For YOU For Creating Wealth?)

Asset Protection: Creating Wealth By Taking Control of How Your Income is Earned

The first step in creating wealth is getting in control but first you have to know where you’re at.  You can break down the different types of income into four separate categories:

#1 – Earned Income

This first type of income is the income most people are familiar with, and that’s earned income from a job, working as an employee for example.  A person who relies primarily on this type of income has very limited options available to them in regards to how much they earn and how they earn it, essentially giving up those options for perceived security (again, today this is more an old perception than realty).

A person trading their time for money as an employee also pays the highest percentage of taxes.  In most cases, employees are 100% reliant on the income from their job and in many instances living paycheck to paycheck.  If anything were to happen to their job or income from the job, it would be financially (and otherwise) devastating to them.  This type of income does not lead to creating wealth.

#2 – Small Business/Sole Proprietor Income

The next type of income is income as a sole-proprietor or small business.  This person also perceives they have safety or security of their income because they feel they control it.  The fact of the matter however, is that their income controls them.  They are the asset for the business and should anything happen to them, should they fail to produce results for the business, the business would fail.  This person simply OWNS their job.

Small business owners/sole proprietors also pay some of the highest amount in taxes but are not really in control of their life (remember their business controls them)!  Most usually work not only overtime but often double-time, virtually living their business to ensure everything is done just right.  This is where the expression “chief, cook, and bottle-washer” comes from as the small business owner is more often than not a jack-of-all-trades, because they’re either not able to afford to outsource or hire out critical job functions or simply prefer not to (“nobody does it better than me”).  This type of income also does not lead to creating wealth, unless the business owner changes in order to operate at the next type of income.

Examples of these types of earners would be tradesmen like a plumber or electrician, a doctor or dentist, a florist or baker, a “mom & pops” family-run restaurant, even a professional athlete or entertainer.

#3 – Big Business Income

The next classification of income is derived from an entirely different mindset.  The next type of income is that of a big business, typically a business with 500 or more people.

The distinction between this income and the previous small business income is that income from this type of business can be passive to the owner, meaning the owner is not actively required to work in the business in order to maintain and/or increase the income for that business. The owner can be away from the business and the business can still grow without him or her (allowing the owner to be creating wealth).  The asset is the business itself, not the owner of the business (as is the case for a small business or sole-proprietor).

Additionally, income from this type of “big” business – due to it’s passive nature – is taxed at some of the lowest rates and allows a business owner lots more flexibility and control over how they pay their taxes, ie, they could reinvest their profits even tax-free to boost returns for additional profits (which makes it even easier for creating wealth).

More millionaires have been created in the U.S. through this type of income than any other due to it’s many tax advantages and abilities to leverage and reinvest profits to expand and further grow the business and income.

• Examples of these type of businesses would be a plumbing company with branches around the country like RotoRooter; a doctor who runs a hospital that employs many other doctors and nurses; a bakery that bakes goods for distribution across the country; a restaurant chain like McDonalds with not just one store but locations around the globe; an owner of a professional sports team or entertainment company that puts on events around the country.

One of the core differences that determines whether a business will stay small or become a big business is the dependence on systems (as is the case of a big business) versus the dependence or reliance on a personality, as is the case for most small businesses (dependent on the owner to be there, to show up, solve day-to-day problems, to run the business, etc).

Creating Wealth – Some Startling Statistics

A high majority of people will fall into the first or second income category, which is why you can understand how at age 65, 95% of the population is either dead or dead broke with only 4% financially independent and only 1% wealthy.

But here’s the good news:

While your income today may only come from the 1st or 2nd income category as described above, that does NOT mean you are destined to become one of the 95% – there’s still hope for you for creating wealth!

Now that you understand where you’re at, you now have a choice moving forward as to which income group you’d like to belong to, a choice as to what financial future you’d like to have.

That may be possible for others, but not for you… or is it?

You may be thinking how that could be possible for YOU if you don’t already have a big business or the ability to borrow millions of dollars, or the skills, education & training neccesary to invest in or run a big business.

Well as mentioned previously, a big business is classified as having 500 people, but really the main distinguishing factor is again the reliance on systems, not the number of people in the business (and notice I didn’t say 500 people employed, either)…

The Most Important Yet Widely Mis-Understood Creating Wealth SECRET About Big Business Income

A big business can start out small with just the owner-operator (as all companies do).  However, instead of an owner trying to do everything him or herself or trying to be everything for the business – by thinking bigger, by having the long-term and ultimate objective in mind and with the proper structure in place – a business can grow and expand and develop into a big business.

As a business based around systems grows (ie, the owner doesn’t have to be present for the business to run) it starts to throw off passive or residual income to the owner, creating wealth, allowing he or she take a step back to focus on growing the business even bigger (think duplication via streamlining of systems, ie, franchising, setting up chains, etc).

Or he or she could step away from it altogether and do something else – or just live life with the free time and money to now finally enjoy it, thanks to his or her systems-based business (ie, “big” business).

“Only one business model provides someone with the aspirations and desires of financial freedom the ability to start up their business WITHOUT having to mortgage their home or quit their full-time (or part-time job) to get it started…”

There are only a few business models available with such a structure (read my article on the 3 business building options for creating wealth for more detail), but only one tried and true business model provides someone with the aspirations and desires of financial freedom the ability to start up their business WITHOUT having to mortgage their home or quit their full-time (or part-time job) to get it started – especially helpful for those who don’t have tens and hundreds of thousands of dollars (even  millions of dollars) on the side somewhere to invest into starting a business OR for those who do not want to have to give up their job income in the early days before their business starts to throw off enough income to live off (good idea!).

(Once you have established a good deal of wealth and liquid assets from a profitable “big” business, you can further leverage your business to fuel and feed your investment goals to multiply your wealth for the greatest returns from income of the 4th category as outlined in a future article on Creating Wealth through Investment Income)

The Bottom Line: The Most Advantageous Income Type for Creating Wealth

“Big”, or system-dependent, businesses provide their owners the ability to be able to consistently work smart and work hard for a reasonably short period of time (in some cases as few as a couple of years).

And, as their business expands and grows as the systems begin to take over, the owner finds him or herself working less and less in the business as they’re able to leverage more and more of their efforts using the system to create passive, residual income, freeing up the owner’s time to finally experience and live life according to his or her desires…

—–> To learn how you can plug into and get your own “big” business up and running – to build alongside whatever income activities you have now – visit the following page below now: Creating Wealth

Originally posted 2011-05-18 07:01:00.

Original post can be found here: “Creating Wealth – The Type Of Income You’re Making May Be Costing You The Most