We often hear that the rich are having more than 1 income stream. This is entirely true as it is just too dangerous to only rely on 1 single source of income. To grow our wealth at lower risk, we need to have several sources of income streams.
The first type of income stream is earned income. This is the primary income source most of us have. When we work, we get the income. When we don’t work, we don’t get the income. This type of income has a ceiling because it is based on the time we work. We have only 24 hours a day, very soon we will find ourself being not able to increase our working hour and hence limiting the earned income stream.
The second type of income is profit income. This is basically the profit we get from doing sale or business. We get profit when we sell products or services, as long as it is lower than the cost. The higher the price we sell, the more profit we get. We can also engage other people to help us to do the selling, this can help us to increase our profit income. Profit income can be increased very fast if we know how to acquire talents and have a system to help us sell.
The third type of income is the interest income. We can earn interest income by putting our money in the bank or borrowing our money to individuals or corporate. The fixed deposit interest is one of the examples of the interest income. Bond coupon is another type of interest income. The interest income is mostly fixed when we place the money with the borrower or bank. Hence, it provides better income stream stability to us.
The fourth type of income is dividend income. We get this income when we invest into stocks. Dividend is the income distribution by the companies we invest in when there are profits announced by the companies. Normally, companies which give high dividends are big, matured companies which have consistent revenues and profits. REIT, which is real estate investment trust is another vehicle which gives high dividend income. The dividend income is not necessarily stable as the dividend pay-out depends on the company performance every year.
The fifth type of income is rental income. It is generated from the real estate. When you buy a property and rent it out, you will receive the rental from the tenants. This type of income is mostly quite stable as well compared to the dividend income.
The sixth type of income is capital gain income. It is obtained when you buy an asset at a lower price and sell it at a higher price. It can be gained via real assets such as gold, properties, antiques or paper assets such as stocks, index funds, mutual funds, etc.
The seventh type of income is royalty income. You can get royalty income by designing, creating some intellectual properties such as books, franchising license, music or movies.
Out of the 7 types of income illustrated above, 3 of them are active incomes, namely the earned income, profit income and capital gain incomes. For the profit or capital incomes, if you can use a system to make it automatic, it can be considered as passive incomes. The remaining 4 of them are passive incomes, namely the interest income, dividend income, rental income and royalty income. Passive incomes mean you only need to do the work once and you shall get the income continuously without much effort later on. Passive income generation is one of the goals during the wealth creation journey because no one wants to work forever. Passive income streams will ensure we can earn money when we are sleeping.
Remember, all of us have only 24 hours a day. Let’s start to have more income streams especially passive income streams so we can let our money works for us rather than we work hard for our money. If you are not having income when you are sleeping, you will need to work forever.
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