It is a well-known fact, that the Average Millionaire has 7 Different Types of Income Streams.
This allows them the freedom of time and money, as well as the option of choosing their own profession.
In fact, everyone dreams of having enough free time and money, so that:-
– They can live life to the fullest.
– Do the work which they like, whenever they like.
– And don’t have to worry about routine living expenses, Or spend their time working in a job which they don’t like.
In case, one can have enough income, then he can have the freedom of spending his time as well as money, as per his choice.
And in order to acquire enough money and become truly wealthy, sometimes having only one source of income is not sufficient.
One needs to have multiple sources of income.
In this article, we are going to discuss – How to become wealthy by having 7 Different Types of Income Streams.
An Important Point.
All the types of income mentioned below, fall into either of the two categories:-
– Active Income
– Or Passive Income.
So, first of all, let us discuss the difference between Active and Passive income.
What is Active Income?
Active income is the one, where we trade our time for money.
The more time we are able to devote to our Job Or Profession, the more we are able to earn.
But, when we are not able to work, then our income stops. So, to earn this type of income, one must always be actively working.
What is Passive Income?
Passive income is the one, where we have to work only once and the income keeps on coming, again and again, month after month, year after year.
You have to invest your time and energy to set up a system Or a business, and then, it keeps on running and providing income regularly.
You only have to do routine maintenance, or regular supervision work, in order to make sure, that things go on smoothly.
In order to generate wealth for the long term, your goal should be to have as many sources of passive income as possible.
Although, you can earn a lot through earned income also (like if you are the head of department, or CEO of a large company), but the fundamentals are the same.
Till the time you are working, you would be earning a huge amount of money. When you stop working, then your income also stops.
Let us discuss 7 of the most common Multiple Income Streams, which can help you to become wealthy.
Let us discuss the most common, 7 Different Types of Income Streams, which can help you to become wealthy.
7 Different Types of Income Streams.
1. Earned Income.
This comes under the category of Active Income.
This is the income, that is earned through trading your time for money.
The more hours of work you put in, the more money you can make.
Some examples of avenues where you can make Earned income are:-
a) Your Job.
You may be Employed as a worker/manager in some company,
b) Your Profession.
You can be a Self Employed professional, like an Accountant, Lawyer, Consultant, etc.
In this avenue of Earned Income, you get income through:-
– Earning Salary.
– Bonus.
– Commission income.
– Consulting Income.
2. Business Income.
This can be Active Income Or Passive Income, depending on the type of business you are doing.
In case you are having an Offline business, then it would mostly be active income, because as a business owner, you need to be present in your factory/office most of the time.
You can have a great team of people, but you still need to devote your time, for running at least some aspects of the business. So, it cannot be purely a passive income source.
In case you are having an Online business, then you need to devote your time and energy initially, in order to set up the system, and then gradually, you can take yourself out and let it run independently online, with minimal intervention, for routine upkeep.
Examples of online businesses can be:-
– Making a Mobile Application.
– Developing customized software and selling it through your own website/an Ecommerce store.
Most online businesses come under the category of digital marketing. This is a huge concept. We have written an extensive and knowledgeable article on our blog.
Read More:- Top Digital Marketing Business Ideas to Make Money Online
3. Dividend Income.
This comes under the category of Passive Income.
Let us discuss – What is Dividend Income?
Whenever any company makes profits, then,
– Its management may decide to either reinvest those profits back into the business,
– Or, the management might choose to distribute the profits among the shareholders.
The Profit which is distributed to the shareholders is known as dividend.
Initial work required to be done:-
As a shareholder of the company, you get the dividend directly into your bank account.
You just have to:-
– Open a trading account with a good broker, by providing your details, address, bank details, etc.
– Your Demat account is also opened at the same time and the shares get stored in the Demat account. (Demat stand for – Dematerialized)
– Then, you need to do the initial work of researching a good company and then purchasing its stock from a broker.
– After that, you do not have to do much work, in order to receive the dividends.
As and when, the particular companies declare dividends, the amount would be credited directly to your bank account and you would receive a confirmation by Email Or SMS.
Dividend income can be considered among the best forms of passive income, because companies continuously strive to increase their profits, and thus, you keep on getting income in your bank account.
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4. Royalty Income (Or Licencing Income).
This also comes under the category of Passive Income.
Some examples of avenues where you can make Royalty income are:-
– Books.
– Music.
– Videos.
– Photographs.
– Designs.
– Etc.
You need to create something of value, that other people can use, and in return, you get Royalty Income Or Licencing fees.
Here also, you need to work only once and the income keeps on coming, again and again.
For example, you can write a book and sell it on Amazon.
Your initial work is:-
– To write a good book, which provides value to your readers.
– Open an account on KDP (Kindle Direct Publishing). You need to give your details like name, address, etc. along with your bank details.
– Upload your book.
– And then, do the initial marketing to promote your ebook.
Once your ebook becomes popular, then more and more people would be purchasing your book and you would be getting royalty income directly into your bank account.
5. Rental Income.
This again comes under the category of Passive income.
(Although it is not 100% passive, because some work needs to be done on a regular basis, which we will discuss below).
Some examples of avenues where you can make Rental income through property, are:-
– Single-family houses.
– Multi-family apartments.
– Commercial property (leased out to banks, company offices, etc.)
– Warehouses/Godowns.
– Agricultural Land.
Here, the initial work which needs to be done is:-
– Identify a good property (Residential/Commercial).
– Arrange for enough funds to purchase the property. You can use your own funds, Or you can take a bank loan to finance the property.
– Advertise to find suitable tenants.
– Complete the legal formalities (Tenant agreements).
Rental income is a very good source of passive income, but, it is not 100% passive, because you have to take care of routine matters, like:-
– Normal Maintenance and repair of the property.
– Periodically review the tenancy agreements for rent increase.
For routine matters, you can also hire a property management firm, which will do all the things on your behalf, and they can take a percentage of the rent every month.
(Here also, you need to be in regular touch with, and have routine discussions with the property management firm). So, you need to devote some of your time.
Once you have a good property, in a suitable location, then you can sit back, relax and let the rent get deposited into your bank account.
Apart from the Traditional Property rental avenues, you can also make money through:-
– Renting out your spare rooms through Airbnb.
– Renting out your car.
– Renting out Agricultural Equipment.
– Renting out Construction Equipment.
– Etc.
6. Interest Income.
This also comes under the category of Passive Income.
Some examples of avenues where you can make Interest income are:-
– Bank interest (Savings account).
– Fixed deposits of banks.
– Fixed deposits offered by various companies.
– Peer to Peer lending.
You need to identify the best banks, finance companies, online portals, etc., where your money would be safe and you would also be able to earn interest income.
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7. Capital Gains.
This can be a combination of Active Income as well as Passive Income.
Whenever any asset increases in value, then you make notional capital gains.
And when you decide to sell the asset for a profit, then you actually make capital gains (on which you pay taxes).
Some examples of avenues, where you can make Capital Gains Income are:-
– Stocks/Shares.
– Commodities.
– Properties.
– Art.
– Etc.
What is Capital Gains Tax?
– Depending upon the time period for which you own the asset, you need to pay capital gains tax.
– The time period can be Short term Or Long term.
– Short-term is generally up to one year of holding the asset.
– Long-term is above one year of holding the asset.
Here, the main work involved is:-
– Doing adequate research for buying the asset.
– Actually buying the asset.
– When the asset appreciates in value, then sell the asset.
– Paying taxes on the sale.
– Start looking for other assets to purchase.
FAQ (Frequently Asked Questions)
What are the 7 Different Types of Income Streams?
1. Earned Income.
2. Business Income.
3. Dividend Income.
4. Royalty Income (Or Licencing Income).
5. Rental Income.
6. Interest Income.
7. Capital Gains.
Why Do You Need Multiple Income Streams?
– To Reach financial independence faster,
– To live your life with more flexibility.
– To Build Wealth.
– You don’t need to depend upon one source of income.
– You can stop living from paycheck to paycheck.
How to Start Growing your Income Streams?
A) Start with one income stream and focus on making it permanent.
For example, start working on a job and learn everything possible about it, so that at least your job is secure all the time.
B) Then, start exploring the second income stream, for example, Investing in stocks/mutual funds.
Here also, first of all, learn the basics and start investing small amounts in mutual funds.
Once you gain enough experience with mutual funds, then start exploring direct investment in stocks.
For that, you need to first learn about fundamental analysis and technical analysis and then, you can start by doing Investments in good companies, at regular intervals.
You need to keep in mind that developing each income stream takes a lot of effort and time.
So, patience is the key and you need to be persistent and consistent in your efforts. Only then, you would be able to reap the fruits of your labor effectively and enjoy it.
How To Increase Your Earned Income?
A) Work more to advance your career. You can take up more projects, which would eventually help you earn more money.
B) Ask for Raise at your current company.
C) If possible, then take up an additional part-time job in another, non-competing company.
D) Find another high-paying job, in the same industry, Or in another industry.
What is the Difference between Active Income and Passive Income?
– Active Income.
For earning Active income, you need to continuously trade your time for money.
For example, in your job – the more hours you put in your work regularly, the more you earn.
When you stop working, then your active Income also stops.
(While earning Active income, you get paid an hourly rate).
While working for an active Income, it is very difficult to have time freedom.
– Passive Income.
For earning Passive Income, you need to invest your energy and time once, in order to set up a system, which can help to generate a regular income Or regular cash flows.
In case you stop working actively, then your Passive Income does not stop. It keeps on coming month after month, year after year.
Once you have been able to establish Passive Income spruces, then you can have time freedom.
What is Required For your Long Term Wealth Creation?
The more opportunities you can have to convert your active income into passive income sources, the better it is for achieving long term wealth creation and time freedom.
So, friends, I hope that you have enjoyed the above information, and are able to derive the maximum value and benefit from this article on 7 Different Types of Income Streams.
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