7 Sources of Income Everyone Should Have if You Want to Build Wealth
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Are you looking for every way possible to build wealth? You know that rich people tend to have multiple streams of income, and 7 is a great number of sources to have.
But what are the 7 very best sources of income, and how can you get started with adding them to your earnings?
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If you want to build wealth, read on to find out!
How many streams of income should a person have?
Each person should try to have several income streams if their goal is to build wealth. 7 is an ideal number because it really helps you diversify.
Even if one income stream doesn’t do well, you’ll have others that will. That’s why 7 is a great number to work up to.
But you don’t have to start there. You can work up to 7 sources (or more!) of income over time. Start with one, add another, and so on.
As far as how many types you should have, obviously, 7 is great. But it all depends on you and your situation.
If you are in a season of your life where 2 or 3 income streams make more sense, that’s fine. You don’t have to follow every rule, just do what works for you and enables you to build wealth easily.
What are the 2 types of income sources?
There are a million ways to make money, from real estate to working in an office, but there are actually only two different types of income. They are passive and active income. Let’s get some details about each one.
Passive Income
Passive income is preferable but is usually something that you have to build up to. Passive income is money that you are able to earn without you having to trade hours of your time or work for it.
Typically, some upfront work is required, but after a time, the money should come in regardless of any more effort on your part.
Some examples of passive income are book royalties and investing income. These both require varying degrees of work up front but then reward you over time with a lot of income and no more effort required by you.
Active Income
Active income, on the other hand, is actively earned through time or effort. It requires you to actively be doing something to earn it, which is why it’s not the type of income you want to rely on long-term.
Some examples of active income are going to work at an hourly job at a restaurant or for a corporation. You clock in and clock out or are paid a monthly salary and may work even more than the usual 40 hours.
Active income is fine as it gets you money, but it can also be tiring, and eventually, everyone wants to retire from this kind of work, so it’s better to seek passive income sources over the long haul.
Related: Ultimate Guide to Active vs Passive Income
What are the 7 sources of income?
Now that you understand the differences between passive and active income, you can see which categories the following sources fall into. Here are the 7 sources of income you should have to build wealth.
1. Earned Income
The first source of income that you can have comes from a job. This is usually a regular 9-5 job, though it can also be other hours or even a salaried position.
The point is that you earn this money by trading your time. This is the job that’s most often available for most of us when we first start out, and it’s an excellent way to gain work experience.
Some examples of earned income are the paycheck you get from working at a local coffee shop or for a company that you work for Monday through Friday.
2. Business Income
If you own a business that makes money, then you have business income. You can do this by being an entrepreneur who sells a product or a service.
The good thing about this income is that it’s generally unlimited, and you don’t have to wait for pay raises to make more money.
However, it’s a lot more work than earned income many times, and it takes a lot of dedication. If you are able to do the work, the upsides are pretty good as far as income goes.
However, the hours are generally much more than 9-5, and it can take a while to see a profit. Some examples of business income are money you make from an Etsy store or the cash you bring in from decorating and selling cakes.
3. Investment and Dividend Income
My favorite way to earn money from investing is by buying revenue-generating websites (blogs) and earning from the passive income they bring in. Or, selling them for more (blog flipping).
This is a great example of passive income, and if you continue to invest, you can make a good profit with this.
Another way, is to buy stocks. Dividend income comes from stock investing. The company or stock pays out dividends, and then you can make an income. This app makes it easy to buy, sell, and manage your stock portfolio.
Of course, building up a good dividend income does take time. So be prepared to diversify and have other sources of income, too.
4. Interest Income
Interest income is another great passive way to earn. When you invest, make sure that over time, your money is earning you money, otherwise known as interest. This is different from dividends, by the way.
Over time, the interest that grows with your investments can make you a ton of money and secure an incredible retirement. But it takes time and consistency to do this well.
5. Rental Income
This is a popular one, though it isn’t for everyone. If you own property that you then rent out, you can earn rental income. An easy way to do this is to rent out part of the house that you live in if you don’t need the space.
You can expand this into buying another property, such as a house or apartment, to rent out. You can also purchase commercial property and rent it to businesses.
Another option is REITs, which are the simplest approach to real estate income.
6. Capital Gains
You can make money from your capital gains when you buy and sell assets at a profit. This can apply to physical property (like a house) or digital property (a website) you buy and sell at a profit, or other investments and assets.
Either way, it requires time, solid research, and patience to do this correctly. It isn’t entirely passive income, because of the effort needed. And you’ll also need to remember capital gains taxes.
7. Royalties/Licensing
Last, you can earn an income from royalties and licensing. This happens when you create something unique and then charge a small fee to others who want to use it.
Books and music are common ways to make money in this way. So if you have an idea that no one else has, be sure to make an income from it!
Money Habits to Keep in Mind to Build Wealth
If you want to end up with a lot of money, you need to be strategic. Here are some good habits to keep in mind as you continue to move towards your financial goals.
Budget
First of all, you need a budget. Put all your money where you want it to go so you don’t wind up with any surprises and run out of cash.
Obviously, pay your bills, but be smart about the rest. Find ways to stretch your dollars by getting them to make more income for you later. This brings us to our next point.
Invest regularly
Investing on a continual and regular basis is one of the smartest ways to build wealth. This is because compound interest grows your investments over time.
And the more money you add, the more interest you’ll end up with later. So start setting aside a little bit of money each paycheck to invest, and see how it starts to add up quicker than you’d imagine.
Just make sure you understand what you’re investing in. If you need help understanding investment options, speak with a Certified Financial Planner (CFP).
Look for opportunities to add new sources of income
Although you are most likely starting out with just one or two sources of income, you will eventually be able to add more. Look for opportunities to do this and add in another source of income whenever you’re able to.
Obviously, do your research first, and don’t just throw your money at something without checking it out first. But if you do find an opportunity, consider it another way to add a source of income and gain more wealth.
Having multiple sources of income is essential if you want to build wealth.
Now you know what the 7 sources of income are. It’s a good idea to diversify as much as possible with your income sources so that you’ll continually have some money coming in. Even if it takes you some time to build these sources.
It’s also a good idea to work up to having 7 sources of income over time, so you can build as much wealth as possible.
Remember that no matter how much money you earn, you have to have good financial habits like budgeting and saving money. Otherwise, there’s no point in making more money, as it won’t be well spent or saved.
But with good habits and multiple income sources, you’re well on your way to building wealth.
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- Income Streams of Millionaires
- How to Calculate Gross Monthly Income
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