In 2015, the IRS released a study stating that most millionaires have an average of 7 different streams of income.
By diversifying their income sources, millionaires are able to consistently bring in money, no matter what the stock market is doing or how their job treats them. When life throws a rock on the track, they are able to pivot and continue earning income.
Here are the top 7 ways millionaires make money and how you, as a “normal person,” can take advantage of these income streams too, even if your starting income is way below $1 million.
Income Stream #1- Earned Income
Earned income is the money you make working at a job.
For a lot of Americans, earned income is their only form of income. But the scary fact is that when your day job is your ONLY source of income, you are trapped.
Your employer can ask you to work OT or weekends. You miss your kid’s birthday because if you don’t report to work, your boss is gonna fire you and you need that money, so you put up with it.
But there are even ways to diversify earned income:
Get A Second Job
If you’re married, your spouse’s job can count as a second job. Should you suddenly lose your job, they will hopefully be able to still bring in money.
Or you can get a second job of your own.
Maybe you love golf and decide to get a part-time job working at a clubhouse in the evenings or weekends a few days a week. Not only is this extra income coming in now, but should something happen to your primary job, you will still have the income from your second job. You may potentially have the opportunity to get extra hours to make up for your primary job loss while you look for a new primary job. Sometimes a second job may even turn into a primary job.
Mr. Bean does this with Jiu-Jitsu. Instead of paying for classes for himself and our kids, he has used his years of experience to work part-time a few hours a week as an instructor. He gets free lessons for himself as well as our kids AND some extra pay.
Acquire a Secondary Certification or License
You may be an Accountant, IT Pro, Nurse, or whatever, but maybe you’ve always been interested in Real Estate, Web Design, or Construction. Start working towards getting the certifications and/or training needed now.
This accreditation can help you get a weekend job, start a business, or jump into industries during a recession.
By always learning and advancing in the background, you keep yourself relevant and better able to pivot should your current life conditions change.
Income Stream #2- Business Income
Business income is profit or growth from a business your own.
Your business could be something as small as evening dog walking or as large as an accounting firm.
Take the skills you have (even those new accreditations) and start a small business on the side. If you work to grow it, the income produced may even begin to cover your living expenses and more.
Should something happen to your primary job, you can begin focussing more on your already developed business to help cover your expenses while you find a new primary job. Or your business could become your primary form of income.
Depending on how you grow your business, you may even be able to sell it in the future and live off the proceeds. Or you could train others to run it and just enjoy the income it produces, then go start another business. This is what many millionaires do!
Income Stream #3- Capital Gains From Appreciated Assets
Capital gains are the profit made from an asset that has gained value.
This could be a stock in which the value of a company went up so the value of their stock went up.
Or it could be valuable art, baseball cards, vintage cars, or anything that has gained value over time and can now be sold for a profit.
As a “Regular Joe,” you can easily take part in this income stream simply by contributing to a retirement account and investing in low-cost index funds.
When the value of the stocks increases, your stocks are now worth more. In retirement, you can sell those stocks and live off the profits.
If you would like to begin earning and using capital gains income now, instead of waiting for retirement, you can do this by opening an after-tax brokerage account as well to invest. Just be careful to understand the differences between short-term trading (short-term day trading is when you bet on the short-term growth of a stock and sell before the stock value goes back down) and long-term investing (investing involves purchasing stock in companies or industries in which you believe they will grow over time, becoming bigger and stronger as time goes on).
Income Stream #4- Dividend Income
While capital gains create income by an asset gaining value, dividends create income when the asset creates income.
When you own stock in a company and they earn profits beyond what they need to run and grow their business, the excess profits get returned to the stock owners in the form of dividends.
You can begin earning dividends by purchasing dividend-paying stocks. Dividend-paying companies are usually the big companies that are household names. They are more stable rather than trying to grow:
- Newell, the company behind home goods, such as Calphalon cookware, Rubbermaid storage products, Sharpie and Paper Mate office products, Yankee Candle, and many other brands
- Verizon, the giant cell phone company
- VF Corp., big brands in its portfolio include Timberland, North Face, and Vans
By purchasing stock in high dividend-paying companies, you can earn a consistent income paid out each month or quarter. There are even high dividend-earning index funds that provide you with easy access to high dividend-earning stocks.
Income Stream #5- Interest Payments
Interest income can come from all sorts of places including large investments like personal business or mortgage loans to smaller investments like Certificates of Deposit (CDs) or savings accounts.
Any time you lend someone money, you should expect to be paid with interest. And you don’t have to have millions of dollars to lend money:
- Open an HYSA (High Yield Savings Account) Most online banks are currently offering over 3-4% in interest. (If you didn’t know how banks work, they use your deposit to lend money to other people and then pay you a portion of the interest they earned.)
- CD (Certificate of Deposit) To hold your money for a designated amount of time, many banks are currently paying 5%+ (just like with an HYSA, the bank lends out your money and pays you a portion of the interest they earn)
- Bonds– Unlike stocks, which are ownership in a company, bonds are a loan to a company or government entity. They pay you a promised interest rate to use your money
- Peer-to-peer lending– Where you can make individual loans to individuals, businesses, or investors
Income Stream #6- Rental Income
Rental income is just how it sounds: you purchase something and someone pays you to rent it.
It can be a home, apartment, car, industrial building, or whatever.
But if you are not in a place to put tens to hundreds of thousands of dollars towards purchasing properties, you still have options:
- REITs (Real Estate Investment Trusts)– REITs can often be purchased like stocks through a brokerage, or they can be purchased directly through the REIT itself. REITs pool the money of many individuals to purchase, improve, and rent out or sell properties, then split the profits among the investors, providing income.
- House Hack– If buying an entire house to rent out is beyond your budget, you may be able to house hack and purchase a home in which you live in one part and rent out the other part. This could be a classic duplex or remodeling your current home to have a separate living area. You could even bring in a roommate who pays you rent.
- Airbnb, HipCamp, or Turo– If you already own a home, mobile home, land, or car and feel comfortable renting it out from time to time, you could earn income through short-term rentals.
Income Stream #7- Royalties and Selling Rights
When you create something to sell, you own the rights and can continue selling that product until the end of time (or at least until ownership rights run out).
Build another stream of income by creating something:
- Write an eBook about something you know. Self-publish it and continue to receive sales for years.
- Create content like blogs, YouTube videos, or podcasts and connect them to income streams. Get paid for content you created years ago.
- Write and record a song or star in a movie then sell it on streaming platforms or earn royalties when it is used in other forms of media
- Build a brand (a little bit harder) but people like Chip and Joanna Gaines get paid millions to slap their Magnolia brand on things
Our 7 Streams of Income Wrap-Up
#1- Mr. Bean’s full-time boring job (our main source of income)
#2- Mr. Bean’s part-time jiu-jitsu instruction
#3- My disability payments (not something I’d recommend but helps pay bills)
#4- My part-time real estate work
#5- Mr. Bean is beginning a quarterly women’s self-defense workshop, hopefully, this can become a small side business
#6- Investments- these include capital gains, dividends, and interest payments but we are currently leaving them to grow for retirement
#7- REITs- we own REITs in our brokerage accounts and are slowly acquiring some privately held ones
#8- ? We’re always looking for new income streams.
Maybe one day this blog will become profitable. Mr. Bean and his grandmother have contemplated starting a seasonal bakery together. I am toying with the idea of freelance writing. Mr. Bean would like to start training to become a home inspector. There are so many possibilities!
By building multiple streams of income, you can better insure that you will always have financial options.
So start acting like a millionaire and build up those income streams!
How many income streams do you have? What are you doing to start adding more? Leave a comment below and join the conversation.
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