The average person typically has one source of income stream, usually from their 9 – 5 job. In contrast, an average millionaire has more than one stream of income generating cash flow.
With the rise of the internet and globalization, now we have more millionaires around us than ever since.
Making money and keeping more is not as easy as it looks. The world is changing so fast. If you are not good enough with your finances, you might lose your wealth in a blink of an eye.
That’s why an average millionaire has around 7 streams of income according to research. That might or may not be true but for sure millionaires have more than one stream of income.
Not all types of income are the same, you may find that some incomes are active while others are passive. Some are a mix of both passive and active.
Also, some might be highly taxed and some can be leveraged to not have any tax at all.
Below are some of the different types of incomes that the average millionaire has in their portfolio.
Earned income.
Earned income, is an income earned when you directly trade your time for money. This is what you get from a job, this includes the average worker all the way to the C.E.O of a corporation.
Many C.E.O and Directors are still an employee of a company. Other professionals like doctors, nurses, and accountants are also included in this category.
Earned income is received as salaries, wages, bonuses or commissions; which is what is called active income.
This is where the average person starts with.
Earned income is typically the starting point for many self-made millionaires.
Depending on your income, this is great as a starting point.
But the dangerous part is staying in this category for the rest of your life. Because, there is always a ceiling on how much money you can make.
Also, is one of the highest taxed forms of income. People with this kind of income can go all the way to 40% tax on their income. Almost ½ of their earnings goes into paying taxes.
Profit income.
Profit income is an income earned by selling digital or a physical product or services for more than it cost to make or buy them.
This income can be generated either in active or passive mode depending on your business model.
If you make products or offer services by yourself and sell them, then the profit is more of an active income.
On the other hand, if you have a manufacturer who creates a product for you or you have a digital product with less or no involvement in order to sell, then it becomes a passive form of income.
Rental income.
This is every one’s favorite.
Rental income is mostly passive. You don’t have to be actively involved.
Rental income has its own pros and cons. At some point, it is much more time consuming than most people think.
You can rent out anything from your car to your phone or laptop.
Tenants come and go; some stay for a few months’ others for a few years. Some take care of the property others don’t give a dawn.
Some pay the rent on time and won’t get you a single problem. Others are just unnecessary headaches.
Capital gain income.
Capital gain is an income earned when one buys an asset such as a stock or property and then sells it for a higher price.
To understand the concept better. Capital refers to the primary amount invested.
Therefore, a capital gain is the profit realized when an investment is sold for a higher price than the original price purchased.
Some people confuse between the capital gain income and an investment income.
To differentiate between the two; Investment income is profit made through an investment vehicle of any kind that comes from interest payments, dividends etc.
Royalties income.
Royalties income are money earned when an individual or an organization pays/ buys the right to use someone else’s property.
Royalties in most cases are gained from payments for the right to use intellectual property (IP), such as copyrights, patents, and trademarks.
When an individual or organization produces, creates or owns something/product and licensed it. Other people can use the product/ services after paying a royalty.
Some common products that provide royalty payments include a book, a piece of music, a patented product, or a concert.
Interest income.
Interest income is the money earned from an entity or individual for lending its money or letting another entity or individuals use its funds.
As a lender you receive an interest on the capital given out.
The best factor about Interest income is that it gives you an opportunity to earn income without you spending your time on it.
Interest income can be earned in different ways; one can earn interest income through Saving accounts, or interest-bearing checking accounts.
When you open these accounts, you are entitled for severance either at the end of every month or annually.
The bank will pay you a certain percentage calculated against the principal amount in your bank account.
Other places to earn interest income is in the money markets on T-bills and capital markets on bonds.
To maximize the interest received, one should use the power of compound interest.
Compound interest is basically interest earned on interest previously earned.
Dividend income.
Dividend income is money earned by shareholders who hold stock/equity of a publicly-traded company from distribution of earnings.
Dividend income is paid out to shareholders from the profits of a corporation.
When a company makes a profit and accumulates retained earnings, the company can either distribute the earnings to shareholders as dividend or reinvest back to the business.
The declared dividend must be approved by the Board of Directors.
After declaration and approval by the board, the dividend will then be paid to shareholders on a certain date, commonly known as the payable date.
In Most companies, dividends are paid quarterly. Although, other companies pay their shareholders dividend on a monthly or annual basis.
Key takeaways
Before you understand how these different source of income streams work, don’t jump from one income to another.
It feels great to have several source of income streams, but you don’t build them concurrently. You build them one by one.
It’s good to Master one of the source of income streams first. After becoming good at it and realizing that you have reached a level when you are earning enough, then you can create another source of income.
The most important point to note about creating multiple income streams is that most of the income streams need patience and self-discipline.
That’s why the majority never even reaches above 2 sources of income streams. It takes hard work and years to build many streams of income that are stable.