Building wealth and achieving financial security is a dream for many, but how do successful people do it?
One common trait among millionaires is that they don't rely on just one income source; they have multiple streams of income.
Having various income sources can make you financially resilient, allowing you to weather economic downturns and achieve financial goals faster.
Here, we’ll explore the “7 Streams of Income” that the average millionaire uses. We’ll break down each type of income stream with examples from an Indian perspective, so you can start thinking about what streams you already have—and what others you might consider adding.
1. Capital Gains: When Assets Increase in Value
Capital gains are profits that come from selling assets like stocks, real estate, or even artwork at a higher price than what you paid for them.
In India, many people invest in stocks or mutual funds, and over time, as these assets grow in value, they can be sold for a profit. For instance, if you bought shares of TCS a few years ago, the stock’s value has likely increased, giving you a profit if you sell it today.
Example:
Amit invested in gold five years ago, purchasing it at a rate of ₹3,000 per gram. Today, gold is valued at ₹6,000 per gram, meaning his investment has doubled. If he sells his gold now, the profit from this sale will be his capital gains.
Key Takeaway:
Consider investing in assets like stocks, mutual funds, or real estate, which have the potential to appreciate over time. Just make sure to keep long-term financial goals in mind.
2. Interest Income: From Lending Money
Interest income is the money you earn from lending your money to others, typically through banks, bonds, or fixed deposits. In India, interest income is very common.
Many people earn interest by investing in fixed deposits, recurring deposits, or even by lending money through platforms like P2P (peer-to-peer) lending.
Example:
Priya has ₹5,00,000 sitting idle in her savings account. She decides to invest this amount in a fixed deposit at an interest rate of 6% per annum. This way, she earns ₹30,000 annually in interest without doing any extra work.
Key Takeaway:
If you have extra funds, consider investing in FDs, bonds, or P2P lending. It's a safe and steady way to generate additional income.
3. Rental Property: From Renting Out Property
Owning a rental property is a popular income stream in India, especially in cities with high rental demand like Mumbai, Delhi, or Bangalore. If you own property that you’re not using, you could rent it out to generate a regular monthly income.
Example:
Raj bought a 2 BHK apartment in Pune a few years ago. Now, he rents it out to a young couple for ₹20,000 per month. This rental income not only covers his maintenance costs but also gives him a steady cash flow.
Key Takeaway:
Investing in rental properties can provide you with monthly income, but make sure to choose a location with good rental demand to maximize returns.
4. Earned Income: From Working a Job
Earned income is the money you earn from your job or employment. This is the most common income source for most people and is typically the primary stream of income for salaried employees.
Example:
Shweta works as a software developer with a monthly salary of ₹80,000. This is her primary income source, and she uses it to cover her living expenses and save for future goals.
Key Takeaway:
While earned income is essential, it's also limited by time and effort. So, while you focus on your job, consider diversifying your income to build financial stability.
5. Dividend Income: From Owning Stocks
Dividend income is the money paid to shareholders when they own shares in a company that distributes profits. Many Indian companies, especially in sectors like IT and FMCG, pay dividends to their shareholders, making it an attractive source of passive income.
Example:
Ravi invested in Infosys shares a few years ago. As Infosys continues to perform well, it pays regular dividends to its shareholders. Ravi receives these dividends quarterly, which adds to his income without him having to sell any shares.
Key Takeaway:
Investing in dividend-paying stocks can create a stream of income. Look for companies with a stable dividend history if you want consistent payouts.
6. Royalty Income: From Others Using Your Work
Royalty income is earned when others pay you to use something you created, like a book, a song, or an invention. In India, artists, writers, musicians, and even tech creators can earn royalties. This income stream continues as long as people continue to purchase or use your work.
Example:
Neha published a cookbook a couple of years ago. Every time someone buys her book, she earns a royalty. She doesn't need to do any additional work; the income keeps coming in as her book sells.
Key Takeaway:
If you have a creative talent, think about how you can turn it into an ongoing revenue stream through royalties, whether it’s a book, a piece of music, or any other intellectual property.
7. Profits Income: From Buying and Selling
Profits income comes from buying something at a lower price and selling it at a higher price. This income source is common among traders, business owners, and entrepreneurs who deal in products, stocks, or other commodities.
Example:
Vikram owns a clothing store and buys products in bulk at a discounted rate. He sells these items at a markup, and the difference between his selling price and his purchase price is his profit.
Key Takeaway:
Profits income can be lucrative but also requires business acumen. If you have a knack for trading or running a business, this is a stream of income worth exploring.
Why Having Multiple Income Streams is Important
Relying on just one income source can be risky. What if you lose your job? Or if your rental property remains vacant? By diversifying, you ensure that if one stream of income slows down, you have others to fall back on.
Moreover, multiple income streams help you build wealth faster and provide you with a safety net during economic uncertainties.
How to Start Building Your Income Streams
- Assess Your Current Income Streams:
Think about which streams you already have. Do you rely solely on earned income? Are there other streams you could easily tap into?
- Set Financial Goals:
Decide what you want to achieve financially. Are you looking to supplement your income, save for a big purchase, or build long-term wealth?
- Start Small:
You don’t need to dive into all seven streams at once. Pick one or two additional streams that interest you and begin working on them.
- Educate Yourself:
Each income stream comes with its own risks and rewards. Learn as much as you can before investing your time and money.
- Be Patient and Persistent:
Building multiple income streams takes time, but with consistency, the rewards will follow.
Conclusion
The road to financial security and wealth isn’t about relying on a single source of income. Millionaires and financially savvy people understand the value of diversifying their income sources. By exploring these seven streams of income and incorporating a few into your life, you can work towards a more secure and prosperous financial future.
So, take a moment to reflect: which of these streams are you currently using, and which ones could you start exploring? Start small, stay committed, and build your path to financial freedom.
