Is income level ever really appropriate? Are we ever happy with our present earnings level? The answers to these questions are usually no. Both rich and poor are constantly haunted by the need to earn more. The poor cannot understand why the rich should complain and the rich cannot understand why others think they are so comfortable with their money. Modern societies, especially western societies are built on the need for wealth and riches, and the drive to earn more resides in most of us. Speak of money and your listeners will more than likely think of a currency note or a coin. This is understandable, but money goes far beyond just notes and coins. A greater understanding of what money is will probably make personal finance a little more interesting to you. Unlike what you may think, money is more than currency. Money is whatever can serve as a medium of exchange, that is generally accepted and acts as a store of value. General acceptability is important because there must be no doubt that others are willing to accept it in exchange for something else. As a store of value, it must be possible for money to maintain its value over time. There are three types of people in the world, those who depend heavily on their own business for income, those who work for someone else, and those who do both. Of course, there are those among us who are not earning an income. Generally speaking, the essence of personal finance management depends more on your organizational skills than on which of the categories you fall in. In preparing for your personal finance management, you should target four specific areas: 1. Income 2. Expenses 3. Investment 4. Debt management Lets look first at income. It goes without saying that you should try to maximize income. This is easier than you think, because to maximize is to get to the highest possible level given the present realities. While it may be challenging to earn Bill Gates’ kind of income at this point in time, the important thing at this time is that you’re earning as much as you can today given present circumstances. We will start our analysis by looking at the three main income categories: Earned Income Passive Income Portfolio income For most of us, Earned Income is the dominant income category, with Passive Income next in line followed by Portfolio Income. Earned income is the income you earn from the sale of your labor, or your main trade or business. It includes wages and salaries, sales commissions etc. Passive Income is usually earned from activities in which the individual is passively involved. A person renting a portion of their main dwelling, or a second property will earn passive rental income. Portfolio income grew significantly during the ‘90s when the stock market boom had many people rushing to call a broker. This income is derived from investments in stocks, CDs and other capital and money markets investment. Among the categories of income, it is earned income that is most common and portfolio income that is least common. The very wealthy among us earn significant amount of money from portfolio and passive income, and less from earned income. Based on that, and other well-established facts, it is usually more advantageous to thrive for a greater portion of our total income to come from Portfolio Income as opposed to earned Income. For a paid employee, the task is to secure a second source of income. This income source should preferably not fall into the earned income category, as physical strength and mental alertness should not be exhausted acquiring earned income. The second income source should come from either a passive source or a portfolio source. At the outset, the income is usually from a passive source. If you’re presently a paid employee, stop for a minute (or ten) and consider something that you can do to earn additional income. How about teaching, or weekend sports officiating, or proof reading? These are a few of the hundreds (maybe thousands) of things that could be done on a part time basis to supplement Earned Income. Most of us are very good at something that could generate additional income. Think about it and start working on it immediately. The aim is to at all times have more than one sources of income. Go to Personal Finance - part 2