For many people, the reality is that one income stream from their job isn’t enough to make ends meet. So they seek out opportunities to generate extra income streams in an effort to earn more money.
For others, though, having multiple streams of income is less about making ends meet and more about building wealth.
The strategy to building wealth has always been one that requires multiple streams on income. Every book that I’ve read, including these, has mentioned this as a strategy of the wealthy to build and grow their fortunes.
Each income stream is leveraged to invest and create more assets that will compound the wealth.
Though there are many ways that you can make money, they will all fall into one of seven categories.
- Earned income
- Profit income
- Interest income
- Dividend income
- Rental income
- Capital gains
- Royalty income
When all are used in combination with each other, they are a recipe for building and sustaining wealth.
7 Ways to Generate Income
This is the primary source of income for most people. It’s the income that is earned from trading your time for money. You are essentially earning money for work that you are doing.
Earned income is typically the primary or only source of income for most people. After all, we’re simply taught to get an education and a job. Little emphasis or education is put around other ways that you can make money.
To begin building wealth, you can leverage this income stream to create or acquire money generating assets.
I think that it’s important to note that in a generation where entrepreneurship is glamorized, there is still value in working a traditional 9 to 5 job.
In fact, it is your greatest resource for building up other streams of income.
So if you’re working a traditional job to acquire earned income, do it with excellence and maximize your opportunity. Get raises, take advantage of the retirement contribution, and leverage it to continue building wealth.
The word profit is typically reserved for those in business. This explains why it is considered another form of income that contributes to building wealth.
Profit income is essentially income generated through gaining profits from sales of items. It’s the whole concept of buying low and selling high while making money in the process.
The great thing about this source of income is that there is a low barrier of entry for it.
This income is from your money earning interest in a bank or interest that is paid back to your from money that you lend.
As with profit income, there is also a low barrier of entry here as well. Although it may not seem like much, putting your money in a high-interest savings account is one way that you can begin seeing interest income.
Online savings accounts are notorious for extending high-interest rates to their customers. As of this article, rates were as high as 2.3%. That means that you can earn $23 for every $1,000 that you save.
That’s a very easy way to make money without doing any work at all!
Interest income can also be earned from you loaning money and charging interest. This is a very lucrative practice that many of us have been on the other side of.
Just think of the amount of money that banks, student loan companies, and car dealerships have made from issuing loans!
Because interest compounds, loan companies make even more money that the original loan amount.
It’s no wonder that Einstein called compound interest the 8th wonder of the world.
Dividends is money paid out to stockholders by companies from their profits. Essentially, it’s your piece of the pie from your monetary investment in the company.
This payout is considered income once it’s received by the stockholder for that year. In essence, the more stocks that you have in a company, the more money you stand to receive as dividend income.
It’s important to note that not all companies pay dividends. So just because you’ve purchased stock doesn’t mean that you’ll receive dividend income.
Real estate has long been a pillar in the wealth building game. In fact, the name of the game when it comes to wealth is ownership—particularly property.
However, it’s not about owning homes for the sake of owning them. It’s about leveraging the property to generate money. That’s where rental income comes into play.
Rental income is money that is earned from renting out your property—in this case, a home. If done strategically, the income is enough to cover the mortgage (if there is one), maintenance, and property management fee (if applicable), with enough left over for profit.
In the world of real estate investment, the idea is to own multiple properties and have renters for each one so that you are earning rental income.
I actually talk about this strategy and some hacks that you can use to get into this market with Kendra Barnes of the Key Resource. She shares how she was able to become a full-time real estate investor and make it her primary source of income.
This is another term that you’ll see floating around the investment world. Capital gains is money that is earned when you sell your stock in a company or investment for a profit.
Again, it’s the concept of buying low and selling high. This form of income is only realized when you sell your investment, though.
Those who trade stocks are leveraging this concept as they look for opportunities to make gains on a daily basis.
Though this isn’t a consistent stream of income, it is one that is considered a part of wealth building.
Royalty income is a great source of income that is earned passively. It is merely getting paid for usage of your intellectual property.
This term is most often heard in the music industry—where artists are paid royalties for usage of the music. But the cool thing is that you don’t have to be a musical artist to earn royalties.
If you have any for of intellectual property that is being used, you can and should earn royalties from it.
Royalty income is actually one of my top passive income sources. Each time one of my books is sold on Amazon or any other book platform, I earn royalties from it.
Because I am the legal owner of the body of work, I am paid a portion of the earnings when a copy is sold.
Years from now, I’ll still be earning income on something that I created years prior. To me, that’s the best kind of income to have. The kinds that you don’t have to think about.
There are many ways that you can make money, but these seven are pillars for building wealth.