Building Wealth: Multiple Income Streams
On average, Millionaires have 7 incomes, while the Middle Class have only 1 - Their Job
Recently I've had discussions with friends and family about the lack of financial guidance that we all received growing up. Growing up in a family of Haitian immigrants, my parents didn't know much about multiple incomes, finances, or 401Ks. They worked really hard with the information that they were given and they tried to pass that info down as they learned it. Unfortunately for my siblings and I, that info wasn't really useful when crossing the threshold into adulthood. We were left to figure it out ourselves.
This is a bit embarrassing to admit but the first time I heard the term 401K was the first day of my first job after undergrad. I had no clue about investments, multiple incomes, or anything in that realm. I thought the only way to make money was by working a 9 to 5 and saving. The only business course I took during undergrad and grad school was entry economics (I can't remember if its Macro or Micro, its one of them), that being said, anything relating to money was a foreign language to me.
In my search for learning about 401Ks, I came across the book The Money Book for the Young, Fabulous & Broke by financial expert Suze Orman. This book was probably one of the best books I ever read. It helped me understand so much about finances and income.
In this post, we’re going to learn a little bit about the different types of income streams. An income stream is a way of receiving income. There are so many types of income streams, but I am going to share the 7 most common types according to Forbes.
Earned Income This is your traditional 9 to 5, your day job, typically your primary source of income. Unfortunately, this is the only source of income for many people. Working hard to climb this fictitious ladder only to learn that with this form of income, you're trading your time for money. Best explain by the amazing Dolly Parton in her song 9 to 5: "Workin' 9 to 5, what a way to make a livin' Barely gettin' by, it's all takin' and no givin'"
Profit/Business Income This is income you earn from buying and selling. Do you have a small business? Maybe an Etsy store? Do you dropship products? This income is made through transactions of goods or services.
Interest Income This is income you earn from lending money. Some examples of interest income are CD’s (Certificate of Deposit) or interest from Savings Account. Let's say you open a CD with your bank, you are giving the bank the money to hold for x amount of time. You can earn interest over time until you cash them out at maturity.
Capital Gains This is income you earn when your assets increases in value. Selling a house: You buy your first property in an up-and-coming area for $100K, 10 years later, that area is built out and your home is now worth $400K. If you sell that house, the house increase its value by $300K.
Dividend Income There are many different ways to accrue dividend income, I’ve learned about it through buying stocks. This is income earned for owning a stock, kind of like a thank you for from the company for buying shares from them. Very basic example: you buy 100 shares from a company, that company then pays a dividend of $1 per share annually, therefore you would make $100 from dividends at the end of the year.
Rental Income This is income you earn by renting out property. This is the most common “passive” income, but it comes with a hefty start up fee (down payments, closing cost, CDD, HOA, etc).
Royalties and License Income This is income you earn when others use your work. Author: You are an author, you wrote a book, a publisher publishes your book and sells it, for every sale that publisher makes, they pay you a book royalty. Musician: You are an independent musician, you make an album, you put your album on Apple Music so people could buy. For every sale that Apple Music makes, you get a royalty check because it’s your work that they are selling.
These are not the only forms of income, and it is ok if you don't have all 7 checked off. There are so many different types of income. As we move towards a more technologically advanced society, who knows what new streams will open up.
I hope you found this useful. Be on the lookout for my next Building Wealth post.