7 Streams of Income You Need To Maximize Your Earnings
Have you ever come across someone who seems to have complete financial freedom, and wonder how they got there—what their secrets are? You may feel that sense of total independence simply isn’t in the cards, but ask yourself—why can’t that be you? This article takes you through seven unique streams of income that are at your disposal. Read more to be well on your way to financial prosperity!
It’s exceedingly common to have one, or even a few streams of income, but halting at just a few can limit your financial growth substantially. At Bloom Investment Counsel, we are passionate about enabling our valued private clients to reach the next level in their financial journeys.
Perhaps you have excess savings in the bank from your professional endeavours, or maybe your business had a great year—if you’re letting that capital lie stagnant, you’re losing money. Creating multiple income steams allow you to mitigate your risk and protect your cash flow against a downturn in one specific income stream.
For instance, if your business’ industry experiences an unexpected hardship, having multiple, diverse streams of income not only provides you with peace of mind, allowing you to further diversify and experiment with your supplemental capital—but it also gives you even more opportunities for expanding your wealth, and thereby, your legacy.
How Many Income Streams Do You Need To Become A Millionaire?
Firstly, let’s dive into millionaires’ secrets to success. A recent study by the IRS showed that millionaires, on average, possess all seven of the income streams we are discussing here today—go figure! While it’s exceedingly common for individuals and businesses to hit the brakes after they’ve checked off some of the more well-known income streams, that’s not always where the most earning potential lies.
Too often, people experience tunnel vision and remain passive, unable to expand their horizons into the remaining four inactive income streams. While some of the more common income streams you’ve likely heard of (like earned—for example, your salary, as well as interest, and dividend incomes) can have a significant payoff for many people, becoming limited to these three can pose an obstacle in the grand scheme of wealth building.
Do millionaires work harder than the rest of the population? That’s a question that many people ponder. While there are many hard working people in this world—millionaire or not, the truth is that many wealthy and successful people merely capitalize on the various income strategies available to them—but guess what? They’re available to you too!
How do they have the time to engage in all of these income streams? Well, the truth is that more than half of the income streams we will be discussing today don’t require you to lift a finger to continue to receive cash flow from them.
What Is the Difference Between Active and Inactive Income?
In simple terms, inactive income is the money earned that requires little work, or no active involvement to generate ongoing capital—a common example is interest from an investment.
In contrast, active income is the money that is received in exchange for performing a service—for example, the income you receive from your profession, or the money that is accumulated through selling a product.
Earned (salary), profit and capital gains incomes are forms of active income, while dividend, interest, rental, and royalty incomes are forms of inactive income.
What Are the Seven Different Types of Income Streams?
The seven different types of income streams are as follows:
2. Earned Income
3. Income from Business Profits
Leveraging Multiple Income Streams
Once you start achieving additional income streams, you start to be afforded the eternally desirable luxury of time—extra income allows you the flexibility of putting less of this precious resource into your earned income stream—your profession. Once you can leverage this extra time, the possibilities become near infinite and you can truly push down on the accelerator, expanding your capital with exponential potentials. Once you have more time, here are just a few examples of what you can do:
- Write a book—amplify your income by attaining royalty income.
- Start a new business—strengthen your wealth by gaining profit income.
- Learn about and invest in real estate—fortify your earnings through lucrative rental income.
How Much Income Do You Need to Retire?
How much income you need to retire? The truth is, there is no straight answer. We feel that the definition of retirement is retiring from the things you dislike doing. Here’s an exercise: write out a list of all of the things that you enjoy doing, and write out a list of all the things you dislike doing. Once you’ve delegated out all of the activities you don’t enjoy doing, congratulations—you’ve retired! The question you need to ask yourself is, how much income you require to retire comfortably.
This is highly dependent on your lifestyle and the cost of your expenses. In terms of the amount of income you require monthly, you’ll need to calculate and manage your personal costs, which occurs through a cash flow analysis. Reference our recent Cash Flow Guide to learn more about cash flow analysis.
This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.