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Getting to Know The 7 Streams of Income

We earn more, save more and invest more to ensure our future finances are well secured. But the reality is, relying on only one source of income isn’t enough. Realising the fact that getting by on a single income is tough, many people are seeking alternative ways to earn more in order to supplement their income.

But is that all we can do to earn money? Working a full-time job is not the only way you can earn a living. There are multiple ways to make money that you should consider. Here are 7 streams of income which are said to be used by millionaires. Let’s start with the most common income stream that is familiar to almost everyone before we explore the next stream of income. 

Earned Income

Back when we’re kids, we are told to study hard, get a high-paying job and be successful. And that’s how we learn what earned income is. Earned income is the most common source of income that comes from your hard work. It is what you receive by exchanging time for money. Most people start their financial journey from earned income as it is the easiest way for you to make money.

But everyone knows that they will never get rich by solely working a 9-to-5 job. In many cases, this income is just enough to cover basic monthly expenses. That’s why there are people out there who are still living from paycheck to paycheck. If you want to make more money, you will need to invest more hours working. This will somehow ruin your quality of life since you will be left with less time for yourself and your family.

Besides, active income is generated only when you’re actively working. You’ll stop receiving an income the moment you stop. Think about situations that’ll stop you from working – poor health, old age, economic recessions and the list goes on. Having only one source of income is risky and it leaves you wondering if you’ll be secure financially.

Profit Income

You make a profit by selling something for more than the production cost. In other words, profit income is the money received from any business activities. Yes, you heard it right. You need to be an entrepreneur to earn a profit. Profit income is another common way of making money after earned income. Most people who are working a job will opt for this income stream for some extra money. However, entrepreneurship has its own risks and challenges. Depending on the industry, certain entrepreneurial ventures will incur a higher start-up than the others.

Interest Income

Interest income refers to the money earned by lending it out to someone else. This income stream will come from government bonds, P2P lending, real estate crowdfunding or simply from money deposited in a savings account. The easiest way to earn interest income is by depositing an amount of money in a bank and leave it untouched for months or years. The money kept in an interest-bearing savings account will eventually earn you compound interest. The bank will pay you interest based on your account balance. This works the same for your retirement savings too. The interest earned from this method will vary depending on what you “invest” in.

Dividend Income

Dividend income is the money you get by owning shares in a company. It is the money paid out of the profits earned by a corporation to the stockholders. This income stream doesn’t only generate you money but makes you a shareholder of a company as well.

Dividend income is equally passive to interest income since the money will go to you without having you to work for it. You make money just by owning the dividend stocks and holding onto it. Your dividend income grows as the sales and profits of the corporation grow.

Rental Income

This is a form of income you earn from renting out your properties such as houses, commercial offices or industrial properties. Rental income does not only offer you extra money but provides you with more time as well. This income stream can overcome your dependency on earned income. Rental income is viewed as a form of passive income since you don’t have to be actively involved to generate money. The monthly rent will continue to flow in without doing much or perhaps anything at all.

However, you will need a large amount of cash to own a property and generate this income. The cost of keeping and maintaining a property may be high too. Sometimes, you may need to deal with nightmare tenants or an economic situation which favours the “renters market” will also cost you more.

Capital Gains

This stream of income is generated by selling assets or resources for more than the amount you purchased. You earn from capital gain by increasing the value of the assets that you own. The assets may include shares, properties, real estate or a business. For instance, you purchase a stock at RM1000 and sell it at RM1500. In this case, RM500 is your capital gain. You make money through capital gain by investing in a stock that is undervalued at the time of purchase. Once the value has appreciated in the future, you can sell it at a higher price.

Royalties

Royalties refer to the money you earn as a result of permitting somebody else to use your intellectual property. It is commonly derived from the employment of patents, copyrighted works, natural resources or franchises. The one who uses your ideas or creations pays you for the rights to use it. If you’re a writer, you make money for each copy of the book sold.

Will this make you a lot of money? Again, it depends on how many copies of your patented products are sold and if there’s a demand for it.

How many streams of income are you building today?

In today’s crisis, if you’re relying on just one source of income – what happens when that source is cut off? It’s not too late to start building the other 7 streams of income to secure a better financial future.


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