Updated: June 16, 2021
In wealth circles, it is often mentioned that millionaires have an average of seven streams of income. This means they have around seven sources of cash flow.
Think about your financial situation and ask yourself, how many sources of income do you have? If you’re like most people, then you probably have two.
The first would be your job salary. And second, would be the interest income you get from your bank savings account.
That isn’t so bad. Because all you need is five more and you’re on your way to becoming a millionaire. In fact, just open an investment account in your own bank, and your income streams immediately become three.
So you might be wondering, what other sources of cash flow can you have? Here are the seven most common types of income streams, which you can build.
1. Earned Income
This is, of course, your job salary — regardless if it’s from employment or freelancing. It is cash you get as payment for a service you rendered (to your company or client).
If you’re already employed, then getting a freelancing gig is another source of income. And that’s what a lot of people do who are looking to augment their cash flow.
Interestingly, doing freelance work is the best way to set yourself up for entrepreneurship. A lot of the skills you’ll learn in freelancing are necessary to be successful in business.
2. Interest Income
This is cash flow that comes as a result of lending your money to an individual or institution. If you have a bank savings account or a time deposit account, then you’re earning interest income.
Other sources of interest income are debt-based investments, such as bonds. You can invest in government or corporate bonds, or invest in a bond fund; as well as a fixed income or money market fund.
It is a low-risk source of passive income. And a great example of how your money can work for you. However, most sources of interest income can only protect your wealth against inflation, and not significantly grow it.
Read: How To Invest in Bonds
3. Profit Income
This is the realm of entrepreneurs. The earnings from selling goods or services in your business are called profits.
Building profit income can be hard because it requires good business sense. And that’s something you can only really learn through application.
If you want to own a business, then just do it. Start small, sell your minimum viable product, and be prepared to learn from your mistakes. As they say in the startup world — fail fast, but fail forward.
4. Dividend Income
Dividend income is similar to profit income, but it is more passive and usually comes if you’re an investor in another business or company.
A cousin, who owns an IT company, wanted to expand. Instead of getting a business loan, she offered me a portion of the company in exchange for capital infusion, which I did. Now, I receive regular dividends from that business.
However, you don’t need a business-savvy cousin to earn dividend income. The easiest way to do this is to become a shareholder of dividend-paying companies that’s listed in the stock market.
A good example is PLDT (TEL), which gives out dividends semi-annually. Globe Telecoms (GLO) is also a good option because they give dividends quarterly.
5. Capital Gains
The stock market is better known for this — making capital gains. Buy shares of a company, wait for the stock price to go up, and then sell for profit.
Simply, capital gains happen when the value of an asset you own increases in value. So apart from the stock market, you can also make this income from art, jewelry, collectibles, and of course real estate, among others.
6. Rental Income
Earning capital gains from real estate requires time. If you want to immediately make money from your properties, then rental income is the way to go.
Condominiums and apartment rentals are the most popular today, but you can also explore office units, commercial spaces, and even dormitories.
But rental income is not just for real estate properties. A friend who has a business that leases out office equipment is technically, also earning rental income.
7. Royalty Income
Royalty income is also called residual income. Just do the work one time, and you can earn multiple times from your work in the form of royalties.
J.K. Rowling became richer than Queen Elizabeth of Britain because of Harry Potter. Sia, even before becoming a singer, has already made millions from writing songs for other artists.
Book authors, songwriters, inventors, and business franchisors make a lot of money from this income source. And you can too if you can nurture that creativity within.
There are seven types of income, but there are multiple ways to make money from each of the income types.
Moreover, I believe that there’s no best income source. Your knowledge, skills, and resources, will dictate which among them is the best one for you to pursue.
What’s important is to realize that you can’t have only just one or two sources of income. And you can’t build multiple sources of income all at the same time.
The key is to focus on just one. Build and grow that until the cash flow becomes stable, then move on to building your next income source. By the time you reach seven sources of income, you’ll see that you’re probably already a millionaire too.