It’s been said that an average millionaire has about 5 -7 streams of income. The question you may have is, who are these millionaires? What are the different sources of income that they have? You need not wonder anymore because, in this episode, I will be going over seven different income sources; hopefully, you can start building more income sources if you currently only have one.
To be financially free, we must all learn how to make money work for us, and to have stable and steady income sources, you should find ways to earn money from more than one source. Let me not keep you waiting further; here are seven different income sources you can use to build wealth.
- Earned Income: This is the most common type of income source. It is the money you make from your job. There are literally millions of people worldwide that make their living by working as employees – whether in a big corporation, small businesses, or governmental agency. There are lots of stigma on people that work for earned income. Most people believe this is the most challenging way to build wealth; some even look down on them, saying they trade their time to make money. Both are actually true, but in my opinion, as long as you are working, doing what you enjoy, and making money legally, you need nothing to be ashamed of. Many employees ended up becoming CEOs.
RECOMMENDATIONS: Leverage your time and be efficient. If you have the skills and experience to earn $100/hour, there is no reason for you to settle for making $40/hour. Think big. Aim high. Be a problem solver, and try as much as possible to grow your career.
Also, as you work to earn, ensure you get some money aside to help you build wealth.
2. Rental Income: You earn this income when you rent or lease a house, car, or other property you own to someone else. Rental income is an excellent way of making your money work for you because once you buy a property, you can continue to make money as long as the property is on lease and your tenant keeps paying. You typically need some initial capital to buy the property. This is the biggest hurdle for most people, and that’s why most people don’t take their time to explore this option of building wealth. Once you can buy your first property, if you are focused and disciplined, you can buy the second, the third, and so on.
RECOMMENDATION: Make sure you buy in great locations – low crime, good and reliable tenants, and ensure you practice good maintenance culture. If there is any broken appliance or damage to the property, respond to your tenant on time and get it fixed. If you are not the type that can manage people, you can hire a property manager to help you, but note that will increase your overhead and reduce your profits.
3. Dividend Income: This is one of my favorites; it is the income type earned by the distribution of income from companies to shareholders owning stocks that pay dividends. As a consumer, you buy and use several items – Phones, Cars, Food items, etc. If you can invest in the companies that make those things you buy, you are indirectly making profits from them and getting your money back. You will need to purchase substantial units of shares before you can see any meaningful income.
RECOMMENDATION: Before you invest, do your research to ensure that the company you are investing in will continue to make money for a long time. If you are not savvy enough to pick stocks, you can invest in mutual funds and ETFs, which are stocks of multiple companies all looped together into a single fund.
4. Royalty Income: This is for the creators. It is the income you get when you own the rights to a piece of art, music, book, or another asset licensed for others to use or from the extraction of oil, gas, or minerals. You can continue to earn perpetually as long as people buy your products.
RECOMMENDATION: Ensure you have proper protection in place for your proprietary asset.
5. Business Income: If you own a business and provide products or services to your customers. If you run your business efficiently, there should be a margin between what it costs you to make your products or services and how much you actually sell to your customer. The goal is that the cost should be lower than the selling price so the business can remain profitable. The difference between your cost and the selling price is your profits. The more customers you can serve, the larger the profits you can potentially make.
RECOMMENDATION: Keeping a proper accounting record is crucial for a business’s survival. You should have a proper structure – whether LLC, Partnership, or sole -proprietorship. They have their pros and cons. Also, ensure you separate personal expenses from business expenses and keep detailed records. Finally, you should be able to draw a salary from the business and still have some profits you can re-invest in your business. That may not be possible initially, but as your business grows, you should be able to pay yourself from the company.
6. Capital Gains Income: We all like the idea of buying low and selling high; when you do this, what you get on top of it is your capital gains. For example, let’s say you are into cryptocurrencies, and you bought one Bitcoin when it was around $10k apiece. If you held it and sold it when Bitcoin hit $50,000. You have made $40,000 gains as a result of this single transaction. This type of profit is subject to taxation when you sell an asset such as stock, crypto, or real estate. There are both long- and short-term capital-gains tax rates depending on how long you held the asset before the sale.
RECOMMENDATION: Capital gains tax can be as high as 37%, depending on your tax bracket and how long you held the asset. Long-term capital gains are derived from assets held for more than one year before they are disposed of. After owning it for less than a year, selling a capital asset results in a short-term capital gain taxed as ordinary income.
7.Digital Income: This is another excellent way to earn an income. The money you make by creating an online course, e-book, podcast, TikTok, YouTube, Instagram, Blog website, and membership sites will fall under this category. This is a good source of evergreen income because once you have it set up and running, you can continue to make money as long as people continue to buy your products.
Recommendation: Find ways to continue to increase your tribe.
And that’s where I’m wrapping it.
And that’s where I’m wrapping it.
If you currently have just one income source, do yourself a favor, and explore the possibility of adding another income source. If you have two already, step up and add one more.
The deal about money is finding ways to make your money work for you, which is the way to achieve financial freedom.