On this episode of #FinanciallyFocusedMONEYTALK, we discuss how trends can help you create wealth. Today’s trends are all pointing to a move back to the way things were. That may sound strange, however, the idea is to research what works for you. At the very least, as the economic landscape becomes more uncertain, people need to look at options for increasing their streams of income. In fact, there are 7 streams of income that one could consider. EARNED INCOME from your job. PROFIT INCOME from buying and selling. INTEREST INCOME from lending money. DIVIDEND INCOME from owning stocks. RENTAL INCOME from renting out property. CAPITAL GAINS when assets increase in value. ROYALITIES which is income from others using your work. Building different revenue streams may be only way to survive.
On this episode of #FinanciallyFocusedMONEYTALK, the trend is where the key to create wealth lies. Host #DenniseWilliams and guests #DuaneLueFung, #ElizabethTerry, #DinoHinds and #DrCarolynHayle share their thoughts on the topic.
We also pulled this great research from Manoj Arora (not on the programme, but an awesome article we found) that shared his ideas on 7 sources of income.
Here are 7 Income streams for 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 most cases, jobs will pay you just enough to stay over broke. Quite obviously JOB means Just Over Broke. Now, the reason why most people are not able to think beyond earning money through a job is because Job will provide you with a ‘relatively’ comfortable zone.
2. Profit Income
Money that you earn by selling something for more than it costs you to make. e.g. Businesses selling their goods at a profit, whether at the retail or wholesale level, as distributors or manufacturers. You need to be an entrepreneur for earning profits.
You might need huge investments or you could start a small business for profit with small investments too. But this will also take away a lot of your time, at least in the initial stages – until you learn to manage it really well and be able to make it churn of its own. Entrepreneurship is a different kind of mindset and risk taking capability.
Most of the people who are in job 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. Most often, this lack of courage is justified because of the family constraints and needs.
To be an entrepreneur and start earning profits, you will need to identify a product or a service that you want to sell, and then sell and manage it well, and manage your clients equally well.
For most people, ‘Earned Income’ and ‘Profit Income’ are the only viable means to earn serious money but they often tend to forget that there are 5 other ‘equally’ viable and serious streams of wealth generation.
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, lending it to the government in the form of buying Treasury Bills etc.
This is a great source of passive income where your active involvement is not needed once the investment is done. Many doubt on the seriousness of wealth ‘Interest Income’ can generate, but when combined with thepower 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 income gets even better than Interest Income. It is equally passive and not only that, it also makes you a shareholder of a company. This is the money that you get as a return on shares of a company you own.
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. Now, this income is even better but there are inherent drawbacks of this kind of income over the above 4 types of incomes.
One of the biggest drawbacks is the amount of money required to create such an asset which can generate regular rental income. Since the money required is huge, you may not be able to create many such assets in your life time, unless you have other sources of income.
The other big drawback of this asset is the (il)liquidity of the asset. It is difficult to liquefy this asset quickly in times of need or when you move / re balance your portfolio mix.
6. Capital Gains
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 oncapital gains. However, there are ways to come around taxes as well.
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 what ever they earn.
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 moneyyou can earn
These are the seven sources of income and millionaires usually earn from multiple such income streams. Most millionaire won’t have all of these 7 income streams – in fact most of them wont even more than 1 or 2 income streams.
So focus on what you can do right now from one of these income streams. Then become the best you can in a small niche in that income stream.
