Updated: Sep 21, 2020

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For those wannabe millionaires, are you aware that wealthy have an average of seven streams of income?

The more money you have, the more money you can get. The truth is that the rich do get richer. Multiple income streams have made many individuals into self-made millionaires every single year. Each additional stream of income will greatly increase your chances to become a millionaire. The key to success is to be passionate in what you do. Smart people have learned that the best way to build wealth is to turn your active income into multiple passive income machines.

To explain, there are two basic forms of income

  1. Active income is when you do work and are paid for the hours that you work If you do stop work, you will no longer be paid.

  2. Passive income is when the payment is not directly tied to active work.

Typical passive income sources are front-loaded with active work, for which you are paid a small amount while the bulk of the income comes later. In other words, you need to put in a lot of work initially to enjoy the bulk of the returns later. Do not mistake passive income with no work. Your income is not directly tied to the hours worked.

The key to accumulating wealth is not complicated: First, sell your time for money, then spend less than you earn, and finally invest your savings so it will grow without your active intervention. The one constraint is your personal time. Hence as we grow older, our time will decrease.

Also, when discussing on the idea to save money, there are two schools of thought, either save more –focus on living “frugal” and cutting your expenses; or to earn more focus on earning more, on side hustles, businesses, etc. My advice is that you should try do both simultaneously, to achieve a balanced lifestyle while proceeding to your goal as fast as you can.

The strategy is to begin with active income, and at same time build up your passive and semi-passive income streams. If you have no other resources, you start by focusing on active sources of income (jobs) until you have saved enough so that you can build up passive resources.

Highly-paid professionals (like doctors, engineers and lawyers) should be looking into multiple streams of income. Others, who have the expertise to take on various active jobs, at the side of our day jobs, should do the same. In fact, these are in the best position to accelerate our growth towards financial freedom as they are able to earn the necessary capital and immediately moving funds into creating additional income streams very quickly. During this time, keep expenses in check, live a balanced lifestyle, and be disciplined about transferring earned income from your day jobs into the passive generating machines.

Having a multiple income streams is akin to diversifying your portfolio for investment. Most people who have only 1 or 2 income streams suffer when something happens to their income stream, such as company restructuring, or encountering a stock market downturn. Aim to have at least 3 or more income streams in enhancing your success in becoming the next millionaire and securing your financial future.

Let us list the seven income streams to achieve financial freedom and make your first million:

  1. Earned Income

  2. Profit Income

  3. Interest Income

  4. Dividend Income

  5. Capital Gain Income

  6. Rental Income

  7. Royalties Income

Earned Income as what was discussed earlier, your salary income, the income you get from a job and you will need to exchange your time for money. Not many millionaires can be made by depending on this income. As mentioned earlier, there is your time constraint, you could only sell your limited number of hours a day for this income. The added disadvantage of this income is that as you get older, your paid salary will be higher, and you will prone to the risk of company restructuring. None of this is your fault. You are also dependent on the requirements of this job, and as you grow older, you will find difficulty fulfilling these requirements.

Unfortunately, most people remain stuck to this one stream of income, as this will take the least amount of effort to obtain and having a job will keep them in their comfort zone. People like getting a regular job because their next payday are considered predictable. Having just one earn income is also the main reason why many never become a millionaire.

Earned income is a good start in getting your 1st stream of income, especially if you are well paid for your time, but if you want to secure financial freedom and become a millionaire, you need to adopt a few more streams as soon as you can.

Profit Income is the income obtained when you earn a profit by purchasing some goods at low price, and selling them at higher price. This income stream is still considered active income as work need to be done per transaction, i.e. selling your time for money. As you are depended on supply and demand, secret to profit income is to strive to obtain lower cost goods and sell them at higher prices. One can setup an internet e-commerce business with low capital selling different items worldwide. These shops open 24/7 everyday all day.

As you grow your business, you learn to outsource tasks to various specialists to increase business efficiency, for e.g. packaging, delivery, promotions etc. Finally you need to start systemizing a your business to be able to increase the passive aspect of the profit income.

Increase your profit income starting and then think of how to systemize your business

Interest Income is the passive income generated when you lend your money for certain amount of interest to be paid over a period of time. The classic example is buying either Corporate bonds, Treasury bonds, bills and notes so that the issuer (government or organization) will borrow your money with contract to repay it at a certain interest rate. This interest rate ranges between 0.1% to 50% depending on the risk of default and the period to time you are lending to the borrower. For example, interest income for U.S. Treasury Bill or Government Bond range about 0.5 - 2% today. These have low interest rates because of the low defaulting risk of the U.S. government. Interest income for corporate bonds can range widely from 0.1% to 50% and this huge range is highly depending on the credit risk of the borrower. You can also buy fixed income security funds from banks to enjoy interest income. This is truly passive income as you do not need to trade your time for this income. Higher defaulting risk usually result in a higher interest rate, and a lower defaulting risk usually result in a lower one.

Increase your interest income by lending your money to collect interests and pre-determined rate. The key idea is to do sufficient research to locate suitable borrows to assess their default risk.

Dividend Income is the income obtained from distribution of company’s earnings to shareholders. Some companies pay their dividend on a half-yearly basis, while most pay their dividend on a quarterly basis. Some Equity Exchange Traded Index Funds (ETFs) pay out dividends quarterly by holding all of the dividends paid by underlying stocks during the quarter cash paid to the investors at pro-rata basis or reinvested into the ETFs’ underlying investments. Dividend income is my one of my favourite type of income. It is truly passive and the return on my investment can be substantial. Some people even basically live off with just their dividend income. A good dividend income can fund one’s retirement income and could help young investors to build their wealth. Many multi-millionaires are made through dividend income with the power of compounding. Warren Buffett created a high dividend yield portfolio by investing in fundamentally strong companies for the past decades. He was reported to have received $3.8 Billion dollars in dividend in the year 2018 and the numbers is still increasing. When investing is done right, the power of compounding will help you create miracles.

Increase your dividend income by dosing research to locate good companies that are financially healthy, have good earnings, and pay good dividends

Capital Gain Income is obtained from appreciation (value increase) of investments. Capital gain can be from the increase in the value of the stocks you own, or the property you own. Good stocks or properties located in good areas usually increase in value over time and these assets can sometimes double or even increase ten times the original value over time. The difference between the price you pay, and price you sell is the capital gain. Many millionaires earn their money through sound investing and getting good capital gains from their investments. This investment is that it is non-recurring: once you have sold the asset, you need to find a good valued asset again, wait for it to appreciate in value and repeat the process. This income is also semi-passive as work needs to be done for the buying and selling process.

Increase your capital gain income by finding good assets that increase in value before selling them

Rental Income is the income you get when renting out an asset you own, it could be a house, a room or a car.

Here, one needs to be a distinction between an asset or a liability. Robert Kiyosaki’s explained in his bestseller ‘Rich Dad Poor Dad‘.

  • Asset are things that help you bring in money.

  • Liabilities are things that take money out from your pocket.

Therefore, if you buy your car for personal use, it is a liability as you need to pay for car loan, fuel and maintenance expenses. However, if you rent out your car to collect rent, it is now an asset which brings in money into your pocket. Millionaires can earn their millions by buying rental properties, by buying properties at good location gives a high return on investment. By renting each property out, they will have multiple streams of rental income which they can use to future invest in more rental properties. One serious drawback is that rental income usually requires you to have large amount of money to buy your first asset. It is not that easy to start having a rental income until you have accumulated some capital. Alternatively you can invest in Real Estate Investment Trusts (REITS), If low capital, you can invest in a portfolio of professionally managed properties. REITs have many benefits over buying the whole property.

Increase your rental income by building your asset for rental. Rental income with properties is not only a great passive income, but also gives high return on investment due to leveraging.

Royalty income can be collected by letting others use your original products, process, ideas, content and design such as writing a book, composing music, creating art, taking original photography etc. Royalty income can be earned by creating an original idea, then selling this temporary usage rights to someone who want to use it in exchange for a payment from what they earn. They pay you what is known as royalty fees.

Some of the most famous companies such as McDonalds, Burger King, and Pizza Hut, collect royalty income by selling people who wants to open a eatery a new license or franchise. The people pay them royalty fees for using their brand logo, slogan and marketing. You can also royalty income by writing eBooks and sell them in Amazon or any other publisher. Each book sold will provide a certain percentage as royalty income. Although royalty income requires a lot of initial work, there a lot of potential. The starting cost is low, you can potentially have unlimited original ideas and unlimited sales.

Collect royalty income by develop your creative ideas and marketing skills

I believe that it makes the most sense to diversify your streams of income as with normal investments, and create as many passive streams as you can.

For the average millionaire, seven sources of income may be the sweet spot. But given my own experience, I believe that seven may insufficient.

How many sources of income do you intend to have? Any desire to have any more income? How would you do it?

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