They say the average millionaire has seven streams of income. Here, we will look at the seven streams of income rich people have and how you can start to develop your multiple streams of income so that you can become financially free and hopefully a millionaire one day. Follow the path that the successful have already paved, and you, too, will become successful.
Most people in the world today earn their money by working a 9-5 job; this is classed as earned income, but there are many other ways you can generate income, some of which you do not need to trade your time for more money, these types of income are wealthy and add to their streams of income and investment portfolios to pay them for years to come.
There is much more to earning money than many people are aware of. In today’s article, we will explore them all individually so that you can gain the financial knowledge you need to get truly financially free and follow in the footsteps of the wealthy.
How Do You Accumulate Wealth?
Investing is one of the best ways to accumulate wealth. Living below your means is key to having enough money to invest.
This means that you should not spend more money than you make. If you do, saving and investing money and building wealth over time won’t be easy.
To become knowledgeable about investing, you must first learn how to save money.
Without savings, it will be impossible for an individual or a business entity to buy stocks from the stock market, bonds, or mutual funds used as investment vehicles by investors to generate income through capital gains (price appreciation).
Active income vs. Passive income
Passive income is defined as money you can earn without actively working. Passive income streams have become popular as more people pursue entrepreneurship and remote work.
A passive income stream differs from an active income stream in that it requires no effort to maintain once you have made your initial investment.
Active income is the opposite of passive forms of income. Active income means you are trading time for money.
This is often done through selling a product or service, but it can also be accomplished by participating in a business or investing in real estate.
The purpose of active income streams is to generate money while doing something that you enjoy and that interests you. In most cases, the outcome will be greater than possible with passive income alone.
The key to making active income work for you is to find something you enjoy doing enough so that it doesn’t feel like work!
7 Income Streams of Millionaires
1. Earned Income
This kind of income is the one that everybody knows and is the most common form of income, this is reffered to as earned income.
Earned income is where you sell your time for money. You exchange your time and skills in return for a yearly salary, usually paid monthly, working for a corporation or small business.
You don’t just have to work for someone else to be classed as being on earned income; you could also be running your own business as a freelancer for example.
Charging your services out at an hourly rate; but you are still selling your time for money in this scenario and thus can never be truly financially free.
The critical thing to know about earned income is that your income stops as soon as you stop working.
One of the other disadvantages of earned income is the high amount of tax you are obliged to pay to the government. This is because, as an employee, you do not have the same access to tax breaks people who earn money with other forms of income can take advantage of.
You may be on an excellent salary, but as soon as you stop working, your money will stop, and therefore earned income is not the right singular path to becoming financially free.
You should keep earned income as part of the overall strategy for creating multiple sources of income.
2. Dividend Income.
Dividend income is when you receive payments from owning shares in a business which is usually paid out quarterly based on the number of stocks in that business you own.
Popular dividend-paying stores include:
You can live off the dividend payments if you invest a large amount in these dividend-paying stocks.
Many retired people live off these dividend payments if they have invested enough over their working lifetime.
Dividend income is a good way to earn passive income, but you need to invest a lot of money. The average dividend is around 2% of the capital you have invested.
So, if you had $100,000 in dividend-paying stocks in the S&P 500, you would receive a dividend payment check of $2000 every quarter.
You can see that you need sizable capital investment to create financial freedom from dividend income alone.
Therefore, dividend income should be incorporated into a multiple-income strategy on your path to true wealth.
3. Profit Income.
Profit income is income that is generated from the sale of something. For example, you buy a piece of jewelry for $4000 and sell it for $5000. This is profit income.
This type of income also requires a large amount of capital investment upfront to buy inventory, and this type of income is usually created by starting a business.
Many people in the earned income category have difficulty creating this type of income because it requires a lot of courage with the amount of capital and time you need to invest, with no real guarantee of success.
To generate profit income you need to identify a product that lots of people want, a product that ideally people need to keep buying repeatedly.
Find the suppliers who can supply it at the right price, create a website to sell the product, conduct marketing and advertising activit to drive interest to the website, and then fulfill the sales.
It’s not an easy task, but if you can get it right, a lot of money can be made this way, and all your operating costs can be offset against tax, reducing the amount of money you pay to Uncle Sam and keeping more in your pocket.
Eventually, as you grow the business, you can employ people to run the day-to-day aspects of it, and then you can enjoy some form of residual income for doing very little in the business.
This takes a lot of hard work and effort, and only genuinely motivated and hardworking people can eventually pull this off. If you think you have got what it takes, then find a product and start to earn profit income from it.
4. Royalty Income.
Royalty income is money generated from intellectual property, for example, when you have commercial rights to a design, a song, or any copyrighted material you license, sell, or receive usage payments from.
The rights can be licensed to an individual or business in return for royalty income.
Take a song by Ed Sheeran, a songwriter, and musician, for example. He earns his income through royalty income.
He gets royalty income every time his song is played on the radio. Every time one of his songs is used on TV, he gets a royalty check, and every time a business wants to use one of his songs for an advert, he gets paid.
This is why successful musicians are rich; they pull in royalty checks from everywhere, and once the popular song is out there, they don’t have to do much to receive this income. They just keep getting the checks in the mail.
5. Interest Income.
I’m sure most people are aware of interest income.
When you receive your American Express or Mastercard bill, it’s that bit that is added to your account to lend you the money to make a purchase.
But it’s not only the credit card companies who can earn interest income.
If you have enough capital to invest, you, too, can lend your money to other people and institutions to gain interest income. When you deposit your money into a bank, the money does not sit there collecting dust, waiting for you to one day come and spend it.
When you deposit your money into the bank, the banks lend your money to other people in the form of loans, credit cards, and mortgages.
In return, they pay you interest for using your money. But before you see the dollar signs and start shoveling your cash into the bank. We all know that banks are greedy, and as such, they only pay you a tiny amount of interest on the money they hold for you and lend out.
For this reason, putting your money into a standard bank account is not advisable. There are bank accounts out there that pay a bit more in interest but not very much, you would be lucky to get 3% annual interest on any money you put into a standard bank account available to the public, and with inflation nearing 10% it doesn’t go too far to keep you out of the poor house.
You could look at other forms of lending for interest income, including lending money to someone to flip a house or lending money to someone to start a business.
This is a high-risk strategy, and as such, you should always seek the advice of a financial expert before making financial decisions.
Another way you can earn interest on the money you have is by putting your money in a peer-to-peer lending account, this is, again, risky, but the interest payments are higher than putting your money in a normal bank account.
6. Capital Gains Income.
Capital gains are received from selling a financial asset that has increased in value and sold to realize that gain. Examples of this could be a house that you purchased for $300,000 and sold for $400,000 or a stock that you purchased for $2000 and sold for $3000; these are all examples of capital gains.
The only way you can realize a capital gain is to sell the asset, so you would only get paid from this once as you would no longer own the asset.
For example, if you had bought $5000 worth of shares in Coca-Cola when the share price was $10 and sold when coca cola hit $60 a share, your capital gain on this sale would be $25,000.
But as you can’t keep making the gains repeatedly, it’s a one-time deal and is limited to the number of assets you can acquire, increase in value and then sell. Furthermore, capital gains need to be part of an overall strategy for wealth creation.
7. Rental Income.
I’m sure you have all heard of this one, too, you purchase a house and rent it out, the rent pays the mortgage, and you have an appreciating asset when you come to sell the house.
If you buy the right house for the right price in the right area, the rent you charge can be more than the mortgage payments. So you will also create a reoccurring revenue stream while building an asset in your portfolio of investments.
You can also buy and rent out apartment blocks and commercial properties, which are often safer investments as you are not relying on one family paying the rent.
You have multiple families in the case of an apartment block. Therefore, spreading the risk as you are never going to lose all that income at once.
It is unlikely that of the families in the apartment block are going to all move out at the same time.
The same with commercial real estate investments. It’s less likely that the business will relocate.
For many years, businesses tend to stay where they are, so apartment blocks and commercial real estate are good bets for rental income.
If you want to be truly wealthy, you shouldn’t limit yourself to purely earned income.
Combine all the methods mentioned in this article to create multiple sources of income and get started on your path to financial freedom.
I hope this article has shed some light on the various income streams high-net-worth individuals are pursuing and helps you on your way to financial freedom.