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Income vs Expense
The fundamental/basic to financial freedom is income and expense. *High income + Low expense = Saving = Assets. In the previous post, we learn about *Net worth = Assets - Liabilities. High net worth = Wealthy, but not = Financial freedom. Let's look at income and expense first. Income, refers to consumption opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. For households and individuals, income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received in a given period of time. For firms, income generally refers to net-profit or what remains of revenue after expenses have been subtracted. An expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs. For a tenant, rent is an expense. For students or parents, tuition is an expense. Buying food, clothing, furniture or an automobile is often referred to as an expense. An expense is a cost that is paid or remitted, usually in exchange for something of value. Something that seems to cost a great deal is expensive. Something that seems to cost little is inexpensive. In accounting, expense has a very specific meaning. It is an outflow of cash or other valuable assets from a person or company to another person or company. This outflow of cash is generally one side of a trade for products or services that have equal or better current or future value to the buyer than to the seller. Technically, an expense is an event in which an asset is used up or a liability is incurred. There are three types of income, earned, portfolio and passive income. To be financially free, portfolio and passive income are the ways. Will show you more. |
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