7 Income Streams of Millionaires | How to Skyrocket your Earnings
7 Streams of Income
At some point in your lifetime, you’ve probably wondered how the rich actually make money.
Aside from those lucky enough to have inherited their fortune, or won big on the lottery, the surprising truth is that millionaires are, in the main, no different than anyone else.
They just think differently!
In simple terms, the reason why millionaires are able to generate so much wealth, is because they have multiple income streams.
Think back to when you were a child – what did your parents tell you to do?
“Go to school, get good qualifications, then get a high paying job.”
You see most people are not wired to become millionaires. They are wired to find a job. Most people are not even aware there are other effective ways to make money – such as starting your own business, investing in high return assets, or becoming an entrepreneur.
We’ve covered making additional money in previous blogs, and there’s a lot of hype about how to become a millionaire overnight, but the truth is that most people just don’t have that overwhelming, all-consuming desire to earn a great deal more money.
Having this mentality will be your biggest barrier to leading a truly wealthy life, as in order to become rich, you need be able to think outside the box and know how to build multiple streams of income, besides just working a job that lets you live comfortably.
Quality of life is the operative phrase here.
The idea of “living comfortably” holds different meanings for different people, but what we all have in common is, unless we are born with silver spoons in our mouths, we all go through life trying to find a way to balance our time spent working, with our time spent doing all the things we like to do.
This is where having multiple income streams comes to the fore.
Millionaires typically have 7 streams of income;
- Dividend income from stocks and shares owned.
- Earned income from working.
- Rents from property rental.
- Royalties from selling rights to use something they’ve written or invented.
- Capital gains from selling appreciated assets.
- Profits from businesses they own.
- Interest from savings, bonds, or other lending activities.
The idea of having streams of additional income is to provide a diversification of revenue.
This does not mean you should have seven jobs.
Clearly, a few of these streams would be active with the remainder being passive income sources, and if you can develop some synergy between them, that would be even better.
The two primary income streams most households have is earned income (a job) for both spouses. It may seem obvious, but having only one spouse working puts the family at risk in the event of redundancy or illness.
If you are single, then you need to think of six additional streams instead of five for a couple.
The second most common stream is investment income, primarily either bonds which pay out yearly, or dividends.
In comparison let’s take a look in more detail at the 7 streams of income bible of millionaires;
1. Earned Income
Earned Income is the money that you earn by doing something or by spending your time e.g. the money that you make in your job, the salary you get by working for someone else.
Now, this is where your quality of life will suffer the most, because you will be trading your time for money.
In a lot of cases, JOB means Just Over Broke as many jobs will pay you just enough to stay off the breadline. Now, the reason why most people are not able to think beyond earning money through a job is because having a job will provide you with a ‘relatively’ comfortable zone.
2. Profit Income
Profit occurs when selling something for more than it costs you to buy or make
Most of the people who are in jobs and are used to the ‘earned income’ want to move to this category at some stage of their career or life but find it difficult to make the move – primarily because of lack of guts to take additional risks.
3. Interest Income
‘Interest Income’ money is the money you get as a result of lending your money to someone else to use, e.g. putting it in the bank etc.
This is a great source of passive income where your active involvement is not needed once the investment is done.
Many doubt the seriousness of wealth that ‘interest income’ can generate, but once you accumulate some cash, when combined with the power of compounding, and the fact that this is a true passive income with least amount of risk, this can beat any of the first 2 sources of income generation hands down.
4. Dividend Income
This is the money that you get as a return on shares of a company you own, and this income can be even better than interest income. It is equally passive and not only that, it also makes you a shareholder of a company.
If you invest smartly on ex-dividend dates of good blue chip companies, you can far exceed the returns from dividend, since you are also a party to the Capital Gains that the share price goes through.
This is one of the key instruments that we recommend for generating adequate Cash Flow and still get very good income.
5. Rental Income
This is the money that you get as a result of renting out an asset that you have, like a house, or a building.
For what it’s worth, in my humble opinion, rental income is the single most important income stream, and obtaining this income stream should be your No.1 priority.
The main reason why is because it has the potential to reduce your need for earned income.
Once you have enough rental income to walk away from your job, you now have Time!
Time is the most important asset we have, and you can now leverage your time to create new income streams;
- You can start a new business.
- You can write a book.
- You invest your rents into dividend stocks.
- You can invest your rents into bonds, etc.
- You can invest your rents into other small businesses.
- You can continue investing in rental property
By focusing on rental income as our primary income stream, you unlock the doors to all other income streams. This same opportunity does not exist when we focus our time on earned income, dividend income, and interest income.
This is the money that you get as a result of increase in value of an asset that you own. For e.g. when you buy shares at £10 and sell them at £11 – the £1 is capital gains, or if you buy your house for £200,000 and sell it for £220,000 the £20,000 is your capital gain.
There are different tax laws in different countries on capital gains, and in previous blogs we’ve discussed ways in which you can reduce your capital gains tax liabilities.
7. Royalty Income
This is the money you get as a result of letting someone use your products, ideas, or processes. They make all the revenues; they do all the hard work and you get a small percentage of whatever they earn.
e.g. if you have a Subway Franchise – the royalty you send to Subway for using their processes, their logo, and marketing etc. is royalty income for them. Or, if you are a writer, you get paid for every copy of the book sold.
The biggest challenge here is to create something unique and then make it repeatable. This will need special skills to create such an asset but once created, there is virtually no limit to the amount of money you can earn
So now it’s over to you!
The biggest risk to your financial life is being dependent on only one income stream where you are actively involved. Each of these streams are one step above the other. You just need to get into the details and understand them more.
Try it out. It could well be life changing for you and your upcoming generations and don’t forget to share your experiences in the comments section.
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