Do you want to increase your wealth and achieve financial independence? If so, you need to start building multiple streams of income. Diversification, or utilizing more than one of the seven income streams at a time, is one of the best ways to strengthen your net wealth over time.
Each income stream has its advantages and disadvantages, so it’s essential to understand them all before deciding which ones to pursue.
7 Primary Income Streams
Earned income refers to any money you generate through working or providing services. It can be wages, salaries, tips, commissions, or any other form of compensation.
It differs from other types of income, such as investment income or passive income, in that it is directly related to an individual’s amount of time and effort. The Internal Revenue Service (IRS) defines earned income as “income received for services rendered.”
This is likely your primary source of money from month to month, but it’s always best to have multiple sources of income. Check out the other six ways you can make money outside of your regular job.
Royalty income is earned when you license your intellectual property to another person or entity. The royalty rate is usually set up at a certain percentage of the sales price per unit sold, but it could also be based on how many times the product has been licensed out (for example, if you license your song for use in commercials).
Royalty income can be a great way to supplement your regular income, and it’s a great way to make money from your creative endeavors.
Another way you can make money from royalties is by selling your intellectual property outright. Essentially, you sell the rights to something and no longer own or control it. So, for example, if a book publisher wants to buy your book to publish it themselves, they’ll pay an upfront fee plus royalties on each copy sold.
When it comes to multiple income streams, dividends can be a great way to secure your financial future. Dividend income is the money you receive from a company when they pay out their profits to shareholders.
So if you own stock in a company and that company decides to distribute their earnings as dividends, you will be paid depending on how many shares of stock you own.
The most important thing to remember is that you need to invest in high-quality stocks with a long history of paying dividends. These are the types of companies that are likely to continue distributing their profits as dividends in the future.
You can also use a dividend reinvestment plan (DRIP) to reinvest your dividends into more shares of stock automatically. Reinvestment will help you compound your earnings over time and build your wealth quicker.
Interest income is a great way to generate extra revenue, and it’s relatively easy to do. The main advantage of earning interest is that it’s passive, so you don’t have to do much work, and it’s an easy way to start earning multiple streams of income.
There are several ways to make money through interest. One common way is by lending money to individuals or businesses. Another standard method is investing in a 401k or 457 plan for retirement.
However, you can also earn interest income through investments, such as stocks or bonds. It’s essential to do your research before deciding on a method for generating interest income so that you understand the pros and cons of each option.
The downside is typically a smaller return on investment with interest income than with other types of investments. There are two types of interest: simple (which pays only one payment per year) and compound (which delivers multiple payments throughout the year).
In essence, capital gains are profits generated from the sale of investments or assets. When you sell an investment for more than you paid for it, that’s a capital gain. And when it comes to making money with capital gains, there is no limit to how much you can earn.
One of the easiest ways to earn capital gains is investing in stocks, bonds, and mutual funds. These are all types of “capital assets” that have historically outperformed inflation over time.
Additionally, these investments can pay dividends that can be reinvested for greater returns on your initial investment (compound interest). So if you’re looking for some extra income, consider investing in stocks or bonds.
An easy way to get started is by using apps like Robinhood that make it easy to buy and trade stocks.
Rental income is earned when you invest in real estate and rent out your property or space to someone else for a specified time, such as month-to-month leases or long-term lease agreements. The rental rate will depend on demand in the area and market rates for similar properties.
One of the best things about renting out your property is that it can be a passive way to make money. Once everything is set up and running, you don’t have to do much else. Of course, there will be some work involved in the beginning while you’re getting everything ready, but once it’s up and running, it’s easy to maintain.
You can quickly get started using investment apps like RealtyMogul.
Another source of income is business income. It refers to profits made from running an enterprise like owning a store, restaurant franchise chain stores, etcetera – all of which generate revenue through sales transactions with customers who pay at a point-of-sale (POS).
While most businesses earn a primary income for someone, they could be used as an avenue to earn extra money. It could be a side hustle where you make money online, like a YouTube channel, blog with affiliate marketing or advertising, or virtual assistant business.
While you can always start your own business to make business income, many people make passive business income by becoming a silent partner. A silent partner invests in the company but otherwise remains relatively hands-off in day-to-day operations. So if you’re looking for multiple streams of income that don’t require much work, becoming a silent partner is a great place to start.
Why You Need Multiple Streams of Income
It would be best to continuously diversify your portfolio by investing in various assets, including stocks, bonds, and real estate investing. This will help you to protect your wealth during times of market volatility. When your income comes from just one source, you risk becoming financially dependent on that one source. Then, if something happens to it – a job loss, for example – you could be in trouble.
But if you have multiple streams of income, it is much easier to keep your finances in order. Additional revenue streams are also important because they provide you with more growth opportunities. If one stream runs dry, another can take its place.
Finally, studies suggest that most millionaires have multiple streams of income. So if you dream of hitting a seven-figure net worth, it’s worth expanding your investment portfolio as soon as possible.
Passive vs. Active Income
When most people think of income, they think of the money they earn from working. This is called active income. For most people, active income means their full-time job or part-time work on the side. It is considered active income when you are paid a salary for your work (by an employer).
However, if you want multiple income streams, you need to invest in passive income sources.
Passive income is the money you earn without working for it actively. This income can come from several different sources:
- Rental property.
- Stocks and shares.
- Royalties from intellectual property (such as books or music).
- Businesses you own but do not operate yourself.
When you own rental property, this means tenants pay rent every month. As long as you maintain the property over time, this is a great way to earn regular income. If you want to build passive income through rental property, then consider starting with a small apartment building in an area where prices are low but demand high. This will help ensure plenty of tenants are always willing to pay rent).
If real estate isn’t suitable for you, then consider investing in stocks and shares through the stock market. This type of investing is a great way to build wealth over time without direct involvement in your investments’ day-to-day operations (although you will want to keep an eye on them from time to time).
The Bottom Line
So, there you have it. You can create new streams to make extra income.
By investing in various assets, you can protect your wealth during times of market volatility. In addition, this will help to ensure that you can maintain your standard of living even if something happens to one of your sources of income. Diversifying your portfolio to include multiple revenue streams, including numerous passive income streams, is the best way to achieve this goal, and it is something that everyone should consider.
Are you invested in multiple streams of income with steady cash-flow? If not, now is the time to start! It’s time to start making money while you sleep. There’s no need to live paycheck-to-paycheck. Build financial freedom today.
Theresa is a personal finance blogger. She writes content for busy professional women to take control of their money and investments. She enjoys reading, traveling, cooking, and writing. Her work has been featured on GoBanking Rates, Your Money Geek, Savoteur, the Corporate Quitter, Thirty Eight Investing, and more.