By Nutty Nirvana on The Capital
An average millionaire has about 7 income streams. But an average middle-class person depends upon only a single source of income which is risky. So, if you are dependent on a single income source, you need to take massive action to get out of the rat race.
Let’s look at the different income streams.
There are two main income categories.
Active income — When you exchange time for income.
Passive income — When you spend little to no time for earning income.
All the below 7 income streams falls under active or passive income stream.
1. Earned Income
This comes under the active income category.
Salary earned by everyone, be it in an entry-level position or as a CEO, is an Earned income.
The fees charged by a professional like a doctor or a lawyer is again an Earned income.
Income from Self employment is also an example of Earned income.
The fact is, if you don’t have millionaire parents, you ought to start your life with an earned income only. No other go.
But the problem with many is staying there itself. I mean, not looking beyond it. Understand that concentrating on our job alone cannot better our finances. Every one of us has 24 hours and we cannot get rich exchanging time for money.
You will be in the rat race, trying to meet both ends.
2. Transactional Income
Simple! Buy low, sell high.
Let’s say, you buy a laptop for 25,000 bucks. Then, you sell it to your friend for 30,000 bucks. The 5000 bucks profit in the above transaction is Transactional Income.
This is also called as reselling, retailing or flipping of goods. A transactional income can be an active income or a passive income.
A provision store which buys wholesale and sells retail is an example of an active income. Because, if you own one, you need to spend your time maintaining and monitoring the store.
But, online transactional income is passive. You can sell digital as well as physical products online which requires small to no time.
3. Portfolio income
Portfolio income is a passive income. I urge you to create your portfolio according to 50–30–20 rule.
So what is 50–30–20 rule?
50% of your earnings for meeting your needs. 30% of your earnings for savings. Remaining 20% goes towards your investment portfolio
This makes your financial planning perfect.
Below are the types of Portfolio incomes:
All the dividend income from holding your stocks, bonds. Interest from fixed deposits, saving accounts, gold bonds, mutual funds, PPF.
4. Rental income
Renting a house is the first thing that comes to our mind when we hear the word rental income.
But there is more to rental income. We can rent our land for a function or a business. Tools, equipment, auto, car, and even musical instruments generate rental income nowadays.
When renting a property bought on loan, ensure that your monthly EMI is less than the monthly rent.
Otherwise, you will be generating negative cash flow.
5. Royalty income
Royalty income is continuous payments for work done once. Payments will fail to increase once your work becomes invalid over time.
A book or movie can serve as a good example here. Take the case of J.K. Rowling, the author of the Harry Potter series of books. She became a billionaire only with the royalty income generated from her books.
Likewise, if you are a movie producer, you generate royalty as long as people watch your movies.
Not only books and movies, but a new idea/product can also generate royalty income. For that, you need to exercise legal rights in the form of a patent on your product.
6. Capital gain income
Let’s say you own a piece of a business in the form of stocks or you own a piece of land.
The price of the business or land can increase or decrease over time. This depends on a lot of factors which is not in the scope of our discussion.
But when you sell at an increased price, the profit earned is capital gains income.
7. Recurring Income
Recurring Income is a monthly or weekly income for using your service or product.
We pay recurring income to telecom operators such as Airtel, Jio. The fee which we pay for streaming services such as Amazon Prime and Netflix is the recurring income for those companies.
Today mobile apps also demand subscription and receive recurring income.
Now you know all the 7 income streams that an average billionaire has. Do not depend on one income all through your life and retire poor. Instead, develop new income streams.
Work at an average pace in your day job. Then in the spare time, work towards creating another income stream. Once, you start getting paid from the second income stream, put it on autopilot. So that it requires little effort.
Then start working on the next income stream. At one point, income from other streams will outweigh your earned income. That’s when you need to quit your day job and concentrate on developing even more income streams.
Do not try to work on all the income streams at once, you will burn out soon with no good results.