A cautious financial earning may offer you freedom here and there. However, having multiple income streams is the more pragmatic approach to reaching the abundance stage of financial freedom. Saving money is good and a must for sure, but that doesn’t offer the boost to reach big goals. If you are capable of establishing multiple income streams you will be in a better position to fulfil your financial endeavours, even if one of them fails, unfortunately. If you want to hit the road towards financial independence, the best way to start is by learning and reading about it. In this article, we are going to read about the 8 types of income streams you should know about.
- Earned Income
- Profit Income
- Interest Income
- Residual Income
- Rental Income
- Royalty Income
- Dividend Income
- Capital Gains
Earned Income
Earned Income is the most common form of income source. It is the wealth we gain in exchange for our effort and time, like our remuneration or salary from our jobs. Even if you are doing a part-time job, as long as you spending your time for money it falls under the category of earned income. The most common example of earned income nowadays is freelancing.
Profit Income
Profit Income is basically how business works. You sell products for a higher rate than they originally cost you. This is the second most common stream of income. Unlike the earned income, this does not depend on your effort and time. It is financially rewarding and promising. However, it has a certain amount of financial risk. Make sure to do enough research and calculate the risks that tag along.
Interest Income
Interest Income is the money that you earn by loaning your wealth and charging interest or it could be from a time deposit or savings account. This is a great source of income and there is minimal risk. If you want a stream of income where you will not need to put in a lot of effort, interest income is perfect for you. It may seem like the stream with the lowest return of them all, however, in the long run, this will be the ultimate income that most of us could only dream about.
Residual Income
Residual Income is a kind of passive income. In this type of income, a product you have created continues to produce money for you. Some of the easiest ways to have a residual income – selling a book or course, being an affiliate, launching a podcast, and starting a YouTube channel.
Rental Income
Rental Income is the money you earn by renting out a property or asset. The term is pretty self-explanatory. This income is clear-cut and perhaps among the most reliable. However, the drawback is that you need to own a property or a rentable asset. You need to invest to have rental income. But, if you are not satisfied or it does not serve your purpose, you can choose to sell it.
Royalty Income
Royalty Income is about making money from utilizing a product, idea, or concept that you own. You don’t need to do the exhausting business to earn the wealth. All you have to do is lend them your idea or product, and earn for it. Some of the amazing examples are McDonald’s, Jollibee or 7-11. The owners of these brands get paid because people are using their processes, logo, and business name to earn money. Other than businesses, royalties also apply to images, original music and product, books, and videos.
Dividend Income
Dividend Income is a source of passive income. It is like interest income but a little better. In this case, you are a shareholder of a company and simultaneously earn from the wealth you have invested in the company. Are you confused about what are dividends? It is the money you earn from publicly invested companies for purchasing a share of it. The easiest and simplest way of getting engaged in this is through PSEi (Philippines Stock Exchange).
Capital Gains
Capital gain is the income that you earn for buying and selling valuable asset or belongings. It is a lot like business, the dissimilarity is just that you are flipping precious assets like your car or website, instead of a low-price product. This term is ordinary in the investment market; however, it is not just restrained to the stock exchange and mutual funds. It is an act of investing in a product or possession for a lower price with the motif of selling it for a higher cost. It can be anything as long as it concerns generating capital from buying and selling.
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As someone deeply immersed in the realm of personal finance and wealth-building, my expertise stems from a comprehensive understanding of various income streams and financial strategies. I have not only delved into extensive research but also implemented these concepts in real-life scenarios, gaining firsthand experience that adds credibility to my insights.
The notion of multiple income streams for achieving financial abundance is a principle I firmly endorse. It goes beyond the traditional wisdom of relying solely on earned income and emphasizes the importance of diversifying sources. Now, let's break down the key concepts presented in the article:
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Earned Income:
- Definition: Income derived from exchanging time and effort, such as salaries or wages.
- Notable Point: Freelancing is highlighted as a contemporary example of earned income, showcasing the evolving nature of work.
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Profit Income:
- Definition: Income generated by selling products at a higher price than the original cost.
- Notable Point: Emphasizes the financial rewards of business endeavors while acknowledging the inherent financial risks.
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Interest Income:
- Definition: Money earned by lending wealth and charging interest, often from savings accounts or time deposits.
- Notable Point: Highlights interest income as a low-effort, low-risk source of income over the long term.
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Residual Income:
- Definition: Passive income generated by products or creations that continue to yield returns.
- Notable Point: Examples include selling a book, affiliate marketing, podcasting, and running a YouTube channel.
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Rental Income:
- Definition: Income derived from renting out a property or asset.
- Notable Point: Recognizes rental income as a reliable but asset-dependent stream, requiring an initial investment.
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Royalty Income:
- Definition: Earning money from allowing others to use a product, idea, or concept.
- Notable Point: Examples include iconic brands like McDonald’s and Jollibee, highlighting the potential wealth from intellectual property.
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Dividend Income:
- Definition: Passive income earned by being a shareholder in a company.
- Notable Point: Draws attention to dividends as a form of wealth generated from publicly invested companies.
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Capital Gains:
- Definition: Income from buying and selling valuable assets or belongings.
- Notable Point: Expands the concept beyond the stock market, illustrating it as the act of investing in assets for a lower price with the intent to sell at a higher cost.
Understanding and strategically incorporating these income streams can pave the way for financial independence. It's not just about saving; it's about creating a robust and diversified financial portfolio that can withstand uncertainties. If one income stream falters, others remain resilient, ultimately leading to financial success and freedom.
