Investment: Passive income

There are 2 types of income:
1) Active income
2) Passive income

Active income needs our physical presence like employee and self-employee. We may not earn if we are absent. Our salary is deducted when our paid leaves are exhausted.

Passive income does not need our presence. Our absence does not affect our business and investment.

We can earn bonus, dividend and interest from our investments.

Investment: Insurance

Insurance is considered as investment as it is done to insure one's life. Term insurance gives us no return but the nominee gets the insured amount on the death of the insured.

Policies like endowment and money back are taken with the expectations of return in the forms of bonus and loyalty. The insured gets the insured amount with bonus and loyalty if any at maturity. 

Investment: Shareholder and dividend, bonus and split of shares

When we invest in a company and buy a share from the share market, we become a shareholder for the company.

We are then entitled to a share of the profit or loss of the company. The management of company can declare dividend, bonus share or split of share to reward its shareholders.

Share price moves up and down during the trading session and varies according to the performance of the company. Price appreciation is also the return against the investment for the investors. The shareholders can book the profit against the investments anytime or continue to hold the share for a longer time. 

Investment: Save first

Investment should start with our income. We have to save first from our income. We know, Income - Expense = Saving.

Here we have a problem. After considering all the expenses, saving would be the second priority. 

If we change the formula to Income - Saving = Expenses, saving becomes the first task to do after we earn salary,  wages,  bonus and other incomes. 

So separating immediately some portion of our income as saving would compel us adjust our expenses to a certain limit.  

Set a target for saving say 5% or 10% to begin with and slowly increase the saving percentage every year or as required.