What is said about 7 streams of income?
There are some misunderstandings about having multiple streams of income and becoming a millionaire, let's analyze why.
Income is the money you receive, regardless of its source, an income stream is when your receive income in a regular basis, flowing into your personal finances.
However many strategies have been recommended by gurus and motivational speakers to obtain "the 7 streams of income" to become a millionaire, but in reallity these streams of income are something else.
To give you a better understanding, let’s go to the organization that, after you, cares the most about the money you make – the IRS.
Do you need 7 streams of income?
According to the IRS, there are 7 main streams of income that individuals can have – although you don’t need all 7 to be a millionaire.
While most millionaires and wealthy individuals have more than one income stream, very few have all seven.
Moreover, people with more than one income stream usually have one or two sources of income that are their main support, while other income streams are small.
What are the 7 sources streams of income?
These income streams are:
- Salary
- Business profits
- Dividend income
- Rents from real estate
- Capital gains income
- Interest income
- Royalties
Salary
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This is the most common income stream, and the way most people think about earning money.
Any money earned from a job working for someone else is salary or wages income. Interestingly enough, this is generally the income stream taxed at the highest rate.
Business profits
If you own a business, you will have income from your profits. Depending on how your business is structured, you may pay taxes on your business income a few different ways.
Wealthy individuals who make a great deal of their money from owning businesses generally have found various tax-reduction strategies to keep as much of their money as possible.
Dividend income
If you own stocks or other investments that pay you yearly or quarterly dividends, you have dividend income.
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Unless you have a great deal of money to invest, this is generally not a very large income stream.
However, dividend income can increase over time as you grow your nest egg or reinvest the dividend income into more stocks
Rents from real estate
Most wealthy people are wealthy because of what they own.
Whether their real estate is residential, commercial, or a mix, rental income is usually a big part of their wealth.
Not everyone is cut out to be a landlord, but if you have the resources to do so, owning and renting out property can be a great way to diversify your income.
Capital gains income
Capital gains are profits made on the sale of an asset. This could be land, a house, stocks, a car, or even a watch or jewelry.
If you hold the asset for more than a year before you sell, capital gains taxes are quite low.
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Interest income
Interest income comes from allowing someone else to use your money.
Interest income usually comes in the form of loaning money on interest or earning interest from a bank account.
Similar to dividend income, this is generally not a very large income stream unless you have a very large sum to invest
Royalties
Royalty income comes from work that you have published.
Authors, artists, actors, and musicians often have royalty income from their work.
You have to be smart to make royalty income work for you – contracts with publishers and agents must have favorable royalty terms or you will end up with next to nothing for your work.
Why should I have multiple streams of income?
More and more people are discovering that one income stream is not enough to meet their needs.
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Either they feel they are not fairly compensated for their work, or the job security they thought they had is melting away.
Creating a new income stream for you can be a way to build an income on something that is truly yours – not on the whim of an employer who may also be struggling.
According to a study, included in Thomas C. Corley's book "Rich Habits", based on 233 surveys about daily habits to wealthy people in contrast to the 128 individuals with least wealth; the most wealth had more than one stream of income:
- 65% had more than 2 streams of income.
- 45% had more than 3 streams of income.
- 29% had more than 4 streams of income.
What is passive income?
Some income streams, such as dividend, interest, and some rental income, are considered passive income sources.
This means that they do not require you to go out every day and work for the money – your money is working for you behind the scenes.
This can be a wise choice if you want another income source, but can’t devote the time to another full-time income like a business.
Which income stream is right for me?
Different personalities and positions in life mean different possibilities.
You may not have the financial ability to purchase a rental property, but maybe you have unique skills that can allow you to start your own business on the side.
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You may receive some money that you choose to invest in dividends, or you may find self-expression in a novel to publish for royalties.
Start small if you have to, but start.
A good rule of thumb is to start with one new income stream.
Work at that one consistently until it is performing well, then add another.
Some incomes will be quite small to start with, but will grow with time and proper management.
