What’s the difference between moguls and the rest? Multiple income streams! While ordinary people and even some entrepreneurs are content with a single income stream, moguls generate revenue from several types of income streams. They know that growth and stability come from diversification.
Most people are content with their income stream primarily because they’re unaware of the multiple ways in which they can earn money. Once you understand the different types of income streams, you’re opening yourself to significant amounts of passive income. The key to that is the diversification of income streams.
Why moguls diversify
Moguls know that working hard and spending late nights and weekends isn’t a permanent solution. This strategy is the default mode of most people. But the truly independent and successful know that revenue shouldn’t be tied to the time spent generating it. What’s important here is that you won’t be trading your time for money for most of these income streams.
The second reason why diversification is important is that it makes you secure. As we have seen from the past two years, anything can happen. Even if you excel in your business or career, relying on only one income stream substantially increases your risk. Diversification increases your overall income and reduces your dependence on any one stream of income.
Thirdly, multiple income streams significantly improve the quality of your life. Since you’re not working hard for additional revenue, you won’t be compromising on your other priorities. By diversifying, you will be able to spend more time with your loved ones or on your hobbies or personal projects. This is how you achieve an abundant life with a work-life balance.
Now that you know the importance of diversification, here are seven different types of income streams that will help you diversify, earn more, and enjoy a superior quality of life.
7 types of income streams for moguls
1. Earned income
Earned income is the income you earn from a job. For the vast majority of people, this is the only income stream, and their only goal is to hold onto it and increase it over time. What affects your earned income are the sector you operate in, your organization’s stability and growth prospects, your willingness to work hard, and your relationship with your superiors.
Another way to describe earned income is that this is what you earn for trading your time. Moguls know that depending solely on this will create problems. At some point, you will reach an upper limit of what you can potentially earn. This could be due to your seniority or the performance of your company.
While earned income will make your life comfortable in the short run, it will also blind you to available opportunities. Since you’re confident of the next month’s income through an assured salary, you may not have any incentive to start something on your own or think of other types of income streams.
2. Profit income
This is when you move out of the comfort zone of job security and start selling a product or service. Profit is the difference between the manufacturing and marketing costs and the selling price. You can either manufacture the product yourself or be a reseller for products or services that others make as moguls know.
Profits are for entrepreneurs. Most people believe that they need large investments to start a business. This isn’t true. You can start small and slowly grow. You can also create a business with someone else’s funds if you can convince investors of the potential of your idea.
But starting a business comes with risks. It would take some time for the venture to generate revenue, and you would need to spend a lot of time on your business, especially in the early stages. Moguls are aware of these risks and willing to do the necessary work. Many start their businesses while being employed elsewhere.
3. Interest income
Everyone knows the concept of interest when they are the ones paying it. Whether it’s the interest on credit cards or personal loans, most people understand how it works. But moguls also know that interest can work in your favor.
The most common way to earn interest income is by saving money in your bank. But there are also other sources like government bonds that give you interest for the money you invest. What makes it an excellent source of additional income is that interest is a passive source of income. You don’t have to trade your time or effort to earn it.
If you think that interest rates from banks are too low and that three percent, for example, isn’t much, you should know about the power of compounding. Over years, your initial savings or investment can significantly grow as you’ll be earning interest on interest. Do remember that for compounding to work, you shouldn’t withdraw the interests you earn.
4. Dividend income
How about an income stream that gives you passive income and ownership of a company? Dividend income is what you earn for your investments in a company by becoming a shareholder. If the company generates profits, you will get dividend income based on the number of shares you own.
Companies usually declare dividends at the end of the year. By smartly investing in high-performing companies on ex-dividend dates, you can earn more from this income stream than what you would earn through interest income. While there is a risk in investing in companies, if you do your homework, you can make this a dependable source of passive income
An advantage of dividend income is that you will also be building your assets. If the company performs well, its share price will rise, which would increase the value of your assets. It’s an effective way to generate returns and build assets at the same time. That’s why moguls are interested in the power of dividend income.
5. Rental income
Just like interest income, most people are familiar with the concept of rental income. Simply put, it’s the fee you receive when others rent an asset of yours. It could be a property or even a vehicle. One of the most common passive streams of income, unfortunately, this isn’t for everyone when starting out.
Why is it difficult to generate a rental income? For starters, you need to invest in an asset. This would require a significant amount of money. Unless it’s a family property, it would be difficult, for example, to buy a home and then rent it out. It’s also impossible to start small when purchasing a property.
Secondly, it’s difficult to turn an asset into liquid cash when needed. If you urgently need cash or need to invest in a promising business, you may have to spend weeks if not months to find a buyer for your asset at the price you demand. The third reason is that while being a passive source of income, you will be required to maintain the property or vehicle. This will cost money, time, and effort.
6. Capital gains income
Dividend income is one form of revenue that you can get by being a shareholder of a company. The other way is through capital gains. This is the difference in the money you receive when your asset goes up in value. While this is usually associated with shares, it can also be applied to other kinds of assets.
Let’s say that you bought the shares of a newly listed startup at $20. A year later, the share price has gone up to $40. The difference of $20 is your capital gains. Similarly, if a property that you bought for $250,000 is sold at $350,000, your capital gains will be $100,000.
Different countries have different rates of taxes for capital gains. In some instances, your tax liability will reduce with the duration of your shareholding. Even if you have to pay taxes on capital gains, there are ways to minimize them.
7. Royalty income
If you can design or create something original that others want to use, you can charge a royalty for the usage. This usually happens in the music industry. Whenever a record company sells an album or a song, the musicians behind it get a percentage of the revenue.
The beauty of this income stream is that it can continue for decades. If people love what you create, your children and grandchildren also may get royalty income from that.
Royalty income isn’t merely from direct sales of the asset. In the case of music, for example, whenever a track is used in a television commercial, the musician behind it would get royalty income from it.
In short
Knowing about different types of income streams will reveal opportunities to make substantial passive income without having to trade your time. It will also help you diversify your investments and build your assets over time.