7 Income Steams that Create Millionaires
Most individuals rely on their job as their only significant stream of income. If something were to happen and you no longer collected that salary, how would your total income be affected? Relying on a single source of income is not only dangerous and risky, but demonstrates a hugely wasted opportunity. Most successful millionaires in fact, rely on 7 difference sources of income. If they were to unexpectedly lose an asset and stop earning income from it, there are always others that will keep money coming in. Not to mention these additional sources are usually passive income, and they generate income while sleeping or spending time in other productive ways.
So how many streams of income do you currently have? Do you rely on a salary, and if so what would happen if you lost it? It can be scary to think about, but it hopefully brings some awareness to the importance of having multiple income streams, acquiring assets that generate income, and the importance and scalability of passive income.
1. Earned Income
Earned income is income that is received in exchange for time. This form of income is usually the first that comes to mind since it is certainly the most popular. Anyone that collects a salary or wages collects earned income, as they are directly trading their time for money. This income can definitely be significant, and provide a comfortable life which really prevents most people from being motivated to work and build additional sources of income. This can really create a lack of motivation and deter individuals from working harder and achieving any more significant wealth.
It is important to keep in mind that you only collect this income if a company or employer believes you provide value to their organization. Or in other words, if you being a part of the team actually makes them more money, then they will invest in you so that you can make the organization more valuable. It's certainly not outlandish to think that you could instead work for yourself and profit from your own value instead of allowing others to profit off of your value.
2. Profit Income
Profit income is exactly what it sounds like. It is income derived from selling something for a profit. When you sell something for more than it costs, you create profit. For example, if you manufacture or buy wholesale goods and sell them at retail value, you will earn more than it cost to produce the goods and you will create profit income.
This form of income is different from earned income as it is not tied to any kind of time investment. This form of income certainly will cost you time, it is definitely not easy creating profit income, however this source of income is significantly scalable. If it costs you $10 to manufacture a good that sells for $20, you make $10 in profit. Without having to invest any additional time, you can manufacture 10 or 100 or 1,000 goods and come out with $100, $1,000, or $10,000 profit and the time investment stays fairly consistent.
Acquiring profit income requires entrepreneurship. You will need to identify products and services that you can sell, manage, and scale. But if you can successfully identify opportunities, this can be a very rewarding additional source of income.
3. Interest Income
Interest income is income that comes from loaning your money to others. It could be the bank, the government, or even other individuals. The best part about interest income is that it is a true form of passive income. You put up the initial monetary investment, and simply wait for your payments to come in. There is no time investment required to collect this form of income which makes it truly infinitely scalable, with the only limiting factor being how much money you have to invest.
Wealthfront is a service I personally use, and am a big fan of. They offer a 0.35% annual percentage yield on their cash accounts. This is 100% passive income that you can collect just for saving money. There are certainly other options available, but before you jump into an opportunity without really learning about it, I'd recommend you start with something safe like a high yield savings account such as a Wealthfront's cash account.
4. Rental Income
Rental income is income that is generated from renting out assets you have. These are commonly assets such as houses and buildings, though the idea can be extended to any asset. This form of income has the ability to be as passive as you would like. For instance, you could save some money by handling maintenance on your assets yourself, or you could outsource maintenance and management to a rental company for a share of the profits at the benefit of this asset becoming a true passive income generating asset. Having the choice to either keep more profits or transform this into passive income makes rental income very appealing. It becomes both scalable and extremely lucrative.
It is important to note the drawbacks as well however, such as the often large upfront monetary investment involved in acquiring an asset such as a house or building. On top of this taxes and other expenses definitely add risk which needs to be managed, and makes every situation and investment different. These assets are also typically not liquid, as you cannot quickly exchange them for the money. If you worry about liquidity, there are other very liquid investments that can generate passive income such as dividend income.
5. Dividend Income
This source of income is similar to interest income, but better in almost every way. It is just as passive, it requires no time investment which also makes it infinitely scalable. However, it also makes you a shareholder of a company which introduces you to additional capital gains as the value of the company increases.
Dividend income can result in significantly higher returns than interest income. That 2.24% yield I mentioned in interest income is certainly a nice, safe return. But dividend income can and has consistently yielded annual returns of almost 10%. If you invest wisely in dividend income, it can be a very lucrative source of passive income that can again scale infinitely depending on how much money you have to invest. We recommend everyone research and get into dividend income, as the returns are significant and again it is true passive income that generates a very nice cash flow.
6. Capital Gains
This income is generated by an increase in value of one of your assets. This means if you buy property or stock and the value increases over time, the increase is your capital gain. This form of income often comes in addition to other forms of income mentioned above. When you buy dividend stocks and rental properties, those assets generally do become more valuable over time. Companies grow for example and the money you put in dividend stocks actually buys you ownership in the company which means as that company becomes more valuable your ownership becomes worth more. These gains are additionally completely passive and require no time investment.
7. Royalty Income
Royalty income is generated from royalties you collect, or in other words it is money you collect for allowing others to use your products or ideas. This form of income requires an upfront investment of either time or money, but becomes passive afterwards. If you start a McDonald's franchise for example, you pay McDonald's for their products and ideas. You pay for their logos, reputation, marketing, and all of the other benefits that their brand provides. You pay them royalty income. This is income they collect for sharing their assets with you. You do the hard work of running the store, and they collect passive income from you without having to invest any of their own time.
Creating assets that are unique and valuable enough to others can certainly be difficult, but it is definitely possible to create something that others are willing to pay you royalty income for access to. And again after the initial upfront investment of creating the asset, this form of income is passive and scales virtually infinitely as well.
All forms of income can really be simplified to belonging to one of the seven sources above. If you take any successful, wealthy individual you will find that it is extremely rare that they got where they are relying solely on earned income. The most successful individuals work for themselves, and focus on creating assets that generate multiple sources of income. Many of these sources are passive income, and this allows them to scale their wealth to the levels they have achieved. The difference between those wealthy individuals and everyone else, is that they have figured out how to generate income that scales, by creating assets that generate passive income so they do not have to trade their valuable time for money.