Learn 7 Types of Income of an Average Millionaire
I bet you’ve often heard that the average millionaire has an average of seven streams of income, constantly flowing into their pocket.
However, the average person has only one stream of income, which almost always happens to be their job.
While your grandparent’s maybe have been able to survive on only one income source in the past years, it’s nearly impossible in the times we’re living in now.
In this article, I will be sharing with you the seven types of income the average millionaires have and give you tips on how you too can have them.
1. Earned Income
Number one is earned income. Earned income is money earned from working or by spending time in a project.
This could be earnings from your job, salary from working for someone, or contract payments. It also happens to be the most common source of income. Earned income happens to be the base of all self-made millionaires.
These earnings give them the boost they need to pursue other income streams while sustaining their lives.
You’ll find that most millionaires or CEOs in multiple companies, which doesn’t necessarily mean they own the company but instead are employed to work in that role.
As for the regular person earned income could be from your job, or even from freelancing. Always keep in mind, that job refers to “just over broke”.
It means, what you can learn from them is only enough for your bills and to keep you afloat. There’s also a maximum on what you can make from jobs as they depend on individual capacity.
For example, we only have 24 hours a day. If you get a job with a maximum wage rate of $30 an hour, working 10 hours a day, you can only earn $300. There’s no possible way of getting more than 24 hours a day to work and increase your income.
Get what I mean.
This sort of income is limiting in time and capacity. You won’t be able to increase your output is one person because you can only do so much in a day.
Also, this income source tends to be the highest tax with an average tax rate of 40% in USA.
Meaning almost half of your income will go to the government. Yikes. Most people settle with their jobs and their wages created their comfort zone, which holds them back from their full potential. Once the comfort zone is created, they settle for their paycheck and anything that surpasses that will be paid by their credit cards, thus creating more problems.
It’s almost impossible to become a millionaire from just your Job paycheck unless you invest wisely and acquire the other income streams we will share with you in a minute.
2. Profit Income
Profit Income refers to earnings acquired from selling a good or service for more money than it cost to make it. This can either be a wholesale retail distribution or manufacturer level for goods.
Today, it’s so easy to create this channel of income with the tools available online. You could start off with a small investment or large amounts of capital. Depending on the available funds. This income stream requires one to adopt the entrepreneurial mindset.
At first, it may be time-consuming before you get the grasp of it all. But with time, it’s well rewarding. Whether you choose to do it online or physically. Profits as an income stream can really boost your earnings and make you a millionaire within a short time.
However, this happens to be risky, and making the wrong move can create many losses. To avoid this, ensure you do a lot of research on the products or services you want to sell, hire expert consultants to guide you through the product development marketing, and finally ensure funds are managed accordingly, especially within the first year.
They say most businesses closed down within the first year of operations. One of the main reasons behind this is due to poor financial management. Use apps or even hire a proper accountant or financial manager if the capital is available to ensure this doesn’t happen to you.
For many people, profit income and earned income happens to be the only sources of earnings that they know.
They tend to forget that there are other five viable streams that concern them some serious money. I hope you’re taking notes. Let’s proceed, shall we?
3. Interest Income
Now, This isn’t a common income stream. But again, millionaires aren’t so common. This earning comes from lending money, in exchange for some interest.
This could be by saving money in the bank, through Treasury bills given to the government, or by lending someone money, which we do not really recommend.
It happens to be one of the most secure income streams, but it comes with the catch because the return rate is also the lowest. The interest rate could be between 1% to 5% making it the least attractive.
However, don’t dismiss it just yet. This income source doesn’t need you to be actively involved in the investment, which makes it a great passive income source. It also happens to be the least risky.
Most people doubt this income stream. But, when you do consider the power of compounding and the fact that it really doesn’t need you to do anything, it can easily beat the 1st and 2nd income streams discussed above.
It’s also the least involving channel for making money and one of the most secure.
4. Dividend Income
Now it’s about to get really interesting. This is one of the best income streams. One, because it’s passive, and it also makes a shareholder of the company.
So how does it work?
When you buy some shares, the company assigns them to you and gives you the shareholder title. A shareholder is a co-owner of a company. Depending on the company’s policies, you’ll be paid in dividends either quarterly or yearly.
Dividends can be defined as the percentage of returns earned from the shares of the company.
Now here’s the best part, you can end up paying zero tax on this income. How do you do that?
Well, if your ordinary income is less than $38,600 a year, you qualify for zero taxes on your dividend earnings. If you weren’t however, more than $425,800 a year, your tax rate is about 20% which is still much lower than tax from earned income, which also happens to be among the lowest tax rates.
As good as it sounds. It’s really underrated and often ignored. By investing smartly on blue-chip companies, you could easily earn so much more money considering you’ll also earn from the capital gains of the share price. This right here has to be one of the best ways to generate a healthy cash inflow and becoming a millionaire.
But let’s first go through all the income streams and then you can decide what suits you.
5. Rental Income
This is the income acquired by renting out an asset owned. This could be office space, parking space, home, or even a whole building.
The property rented could be commercial or residential. A few years ago, venturing into this sort of investment required massive investments in capital. Back then, you would need to buy a house or an apartment for you to lease it out for income.
All you need is an agreement with the owner of the home. While this can only be duplicated on residential properties. I believe that very soon with increased innovations in this space, it will be possible to earn rental income from other property types.
This is one great way to add some zeros to your bank account.
6. Capital Gains
This income is also quite popular compared to the rest on this list. It is the income generated as a result of the increment of value of the owned assets.
For example, if you buy shares at $100 each, and after a couple of months, you sell the same shares for $120. The capital gain is $20.
Another example is if you buy a house for let’s say $40,000 and sell it five years later for $950,000. The capital gains there would be $450,000.
The most common types of capital gains are stocks and real estate property. There are several other assets that can earn you this income. The best part about this income stream is that the tax rates are relatively low. You could pay as low as 10-20% in taxes from income generated this way, depending on the amount earned.
In some cases, this tax could go as low as zero.
With this dream of income, you increase your net-worth, while at the same time paying the least amount in taxes. If this isn’t a great way to become rich, I don’t know what is.
7. Royalty Income
This is the income source that clearly defines what passive income is all about. The earnings are made even after one’s work is done.
To generate this sort of income, you will have to create a unique product, a concept, or a process, which will later be used by other people at a fee.
By letting other people use your creations, they will do the hard work and pay back a small percentage of their earnings to you.
For example, an artist whose music is streaming on Spotify will earn some royalties at the end of a given period based on how much the artist’s music is played.
Today, venture capitalists earning through this channel a lot. If you watch shark tank and other business pitching series, you’ll notice most deals end with royalty price on each commodity sold.
Another example applies to franchises. For example, If you open a subway franchise you will pay in some royalties yearly for using their marketing strategies processes in logo. Writers get paid for every book sold by publishers.
Another great example is, J.K Rollings earnings on the Harry Potter series. She gets paid for the use of her book characters in movies or any other merchandise.
However, this sort of income is one of the hardest to make. The reason being is that you have to create something that’s really unique and isn’t easily replicable. It requires a set of special skills to create such assets. But once done, the earnings are unlimited.
Those were the seven types of income the average millionaire might have. Not all of these income streams might be in their portfolio. In fact, some people have become very rich millionaires or even billionaires by mastering one or two of the methods above.
One of them is Warren Buffett, who became a billionaire through capital gains and dividends. He chose to focus on capital gains on companies within the stock market.
One more billionaire who has a few streams of income is Bill Gates. He made his empire through profit earnings and royalty income through his asset Windows. There are so many other examples of millionaires who chose a few of the income streams listed above. But one thing for sure, none of them have become wealthy through earned income.
We’re not telling you to leave your job, but to start thinking out of the box. Out of the seven streams listed select those that suit your lifestyle, those that you are good in, then becoming the best you can be in that niche. Don’t be afraid to try something different today. You never know, it could be life-changing for your family and your generations to come.
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