Did you know that millionaires have, on average, seven sources of income?
This means that at any single given time, millionaires are earning income, be it passive or active income, through seven various methods.
After the pandemic took its toll in 2020 many people realised that the status quo they've blindly been following all was a lie and that their jobs are not as safe as they thought.
People quickly realised how finding alternative ways to pay the bills is no longer just a luxury, but a necessity.
Whether that's through becoming a freelancer on Fiverr or a driver on Uber, technology has quickly created vast new opportunities for normal people to take advantage of.
Working a 9-5 or starting a business are no longer the only options available to choose from - there are dozens, even hundreds of different ways in which one can earn more money.
While there are some downsides to having many sources of income, there are actually many benefits to it as well.
In this article, we're discussing the different types of income streams and why having multiple sources of income is important.
Types of income streams
Before we discuss why having multiple sources of income is so important, we need to understand the various ways in which you can build a new income source.
Generally speaking, there are 8 ways one can earn an income from.
- Earned income
Your earned income is simply the salary you get paid by your employer through your 9 to 5 job.
If you're a working person, you will earn a set salary every week, month, or year, which is classified as your earned income.
- Profit income
The income you earn through buying and selling assets, goods, or services is considered your profit income.
In most cases, this refers to any income earned through business activities. If you own an eCommerce store, you'll be earning profit income through the sale of your goods.
On the other hand, a marketing agency owner's profit income will be their retainer fee for each client.
- Interest income
Interest is the income you earn when you lend your money to an individual or business.
Banks earn interest whenever they give loans - this can also be done, on a smaller scaler, between you and someone you know.
If your friend wants to borrow $1000, you can charge them 5% interest meaning they'll need to pay you $1050 back.
- Dividend income
When you invest in a stock, you're able to earn dividends depending on the stock you hold.
Not only do you earn money from the price increase of the stock, but some stocks, like Apple, pay quarterly or yearly dividends to their holders which is a small sum of their profits - depending on how much stock you hold.
This makes investors feel like real stakeholders in the company, paying them for their continued support in holding the company's stock.
Any money you earn from others selling your ideas is royalty income.
Millions of people have recently taken a liking to NFTs which have revolutionized how royalties work. As a creator of an NFT, you have the chance to earn royalties (a percentage of the sale price) whenever your work is resold by others.
After the initial purchase from you, the owner, you will then continue to earn a fixed percentage fee from secondary market sales.
If you have a vacant property, you can earn rental income by renting it out to tenants who then pay you weekly or monthly.
While many people don't have an extra home laying around, you can even rent out space - be it an unused room in your own home, a parking space, storage space, and more.
Rental income can be a great way to build long term wealth, helping you earn passive income over time.
A year ago, you bought 10 stocks in Tesla worth $100.
Today, you sell those same 10 stocks for a price of $200 each.
This means that you have made a capital gain of $1000. Capital gains is simply the income you earn from the appreciation of your assets.
People describe residual income as money earned periodically after completing an income-producing task.
This can be the ongoing sale of anything such as real estate, digital products, and more.
Now that we know the 8 income streams, let's discuss why having multiple of them is so important.
Diversify your risk
If the increase in unemployment and climbing job losses have taught us anything, it's that nobody's jobs are as secure as they say.
Working a full-time or part-time job nets you a salary, part of your earned income. Although this could be a great place to start, it's important that you reinvest the earned income you have into building other sources of income.
This is because you may lose your job at any time, putting you in a very tight and uncomfortable situation.
When I worked at Amazon, I was earning more money than I ever thought I would at my age.
I was earning around $800 per week, with some weeks climbing as high as $1000. While it was fun, it didn't last as long as I thought.
The closer we got to Christmas, the more staff that Amazon needed to hire, reducing the overall hours existing employees were able to work.
My income fell from $800 per week to around $400 per week. Luckily, I had a side hustle that helped me tank the drop, and hold off until I could make something else work.
Many people might not be so lucky to have something to fall back on.
In fact, a lot of people might have responsibilities - bills, family, people to take care of, and they could not afford to lose their only source of income.
Whenever you have a single source of income, there's a chance (no matter how small) that you'll lose it.
Building various sources of income negates that risk, giving you some breathing room in the unfortunate case that you lose one or some of your income streams.
As they say, it's better to be safe than sorry - don't put yourself in a difficult situation by neglecting the fact that you need multiple streams of income.
More free time
A lot of people make the mistake of saying 'time is money'.
While I once believed this myself, I later realised how misled I was - time is one's most valuable, non-renewable commodity, that can only be used without being replenished.
On the other hand, money can be made again and again, without limit.
Jackie Chan once said, 'enjoy yourself. The money comes back, your time does not.'
Many people start businesses to escape a life they despise. However, the issue with starting a business is that it's both time-consuming, and can make you a slave to your own business if you don't build it the right way.
Building a business doesn't mean that you should be the driver of the business. If you can't step back from the business and watch it grow, you don't have a business, you have a day job.
Instead, a lot of people decide to pursue other income streams, such as royalty income, dividend income, or residual income.
These forms of income are 'passive' meaning once you've built them, you can step back and watch them periodically produce income without your intervention.
The more passive income you earn, the more free time you have to enjoy your life and the money you earn.
The world's most popular investor, Warren Buffet, earns over $3.5 billion per year from dividends alone.
This is income earned in the background without him needing to lay a finger.
Warren Buffet started early - he managed to invest in small companies that grew over time and dramatically increased the value of his stocks.
However, you can start earning passive income too.
If you have a skill other people might not, you can teach it in a course and sell the course on platforms like Udemy, Skillshare, or Coursera, earning you passive income whenever people buy your courses.
Increase your earning potential
While you're not guaranteed to become a millionaire, you can become one much faster with more sources of income.
If you have one source of income, such as your job, your earnings are capped based on what your employer pays you.
The average salary in the USA is $51,916.27 meaning you'd need to work for almost 20 years - without spending a dollar - to become a millionaire, with a million dollars in the bank.
Having multiple sources of income can help you earn more money, and remove the cap from your earning potential.
Starting a business gives you, the owner of the business, control over your earnings.
Instead of the average 3% annual increase in wages, you can grow your income by 10%, 100%, even 1000% per year, when you own multiple sources of income.
In fact, it's said that the inflation rate increased to 7% in the last month of 2021, meaning that a 3% increase in wages is losing you 4% of your income per year.
However, if you're someone who invests in index funds, like the S&P 500, you're looking at around a 10.5% increase per year.
Investing in index funds is very simple - open up an investment account on an application like Trading 212, and fund your account.
From there, you can buy stocks in the S&P 500.
Applications like Trading 212 give you the ability to turn on automatic payments, known as dollar-cost averaging, which helps you automate your investing.
Dollar-cost averaging takes the tedious task of funding your account and buying shares off your hands.
Instead, you choose a share that you automatically purchase every month, allowing you to invest and build wealth on autopilot.
There are many ways to earn an income, some don't require any capital, to begin with.
For example, creating courses or other digital products can be done for completely free.
Creating NFTs and selling them on Opensea is free unless you choose to sell on the Ethereum blockchain which has gas fees attached to it.
That's why having multiple sources of income is so important.
Did you find this article helpful?
If so, please leave your thoughts in the comments below - let's get some conversations going.
Share this article on social media and with others, let's help more entrepreneurs realize their dreams!
Get involved in our NFT collection's Discord server now.
Join my Quora group where we're building the largest community of online entrepreneurs in the world.
Don't forget to subscribe for free and get the 1-page business plan template!
(Find me on social media if you don't receive it)
Till next time,