How Many Streams of Income Should You Have?
JUNE 21, 2017
Passive Income MD
I talk a lot about having multiple streams of income. I believe it’s the most efficient way to build wealth--but I’m not the only one. Researchers have even pinpointed a statistic: millionaires, on average, have not just one, but seven streams of income.
Now, when I read that, being the critical thinker I am, a few questions came to mind.
First, is seven the magical number of income streams that turns you into a millionaire, or is it that the millionaire knows how important multiple streams of income are, and so begins to “collect” them?
Second, are those seven types of streams, or could those seven streams be in the same category (for example, real estate)?
Finally, do highly paid professionals really need this many streams of income or should they just keep working hard in their given profession?
Unfortunately, I couldn't find too much additional information online (trust me, I looked all over). However, from my own research, I’ve landed on a few ideas that certainly make the most sense. So let’s go back to my original questions:
Do the income streams make the millionaire, or is it the other way around?
Well, the number seven may not be magical, but it does seem these concepts are two sides of the same coin. Yes, the streams may eventually make the millionaire, but it’s also true that the millionaire understands the importance of multiple income streams--without them, after all, he or she may never have broken the million dollar mark. So, he or she continues to increase their streams of income.
Are these seven individual categories of streams, or are they all from the same category?
As with investments, I believe that it makes the most sense to diversify your streams of income. That is, up to a point. If you’re finding a category that works for you, then go for it. Still, don’t put all of your eggs in one basket.
Yes, diversification is key. I’m talking about the whole picture here--not only the way you gain income and net worth, but also what you do with it. Smart people have learned that the best way to build wealth is to turn your active income into multiple passive income machines.
Should you focus on building more streams of income, or is your profession the top priority?
Highly paid professionals (like doctors) should definitely be looking into multiple streams of income. In fact, more than anyone, we are in the best position to accelerate our growth toward financial freedom. We’re able to earn the necessary capital and immediately throw that money into creating additional streams very quickly. We just have to be strategic about it. Keep your expenses in check, and be disciplined about moving your earned income from your day jobs and straight into the money-making machines. There is a balance to be had here. You just have to figure out exactly where it is for you.
If you’ve made it this far, hopefully we’re (at least somewhat) on the same page. And if so, you may be wondering about what these seven streams might actually consist of. Well, while there’s no perfect blueprint for what these income streams should be, here are some of the most common types of streams:
- Earned Income - This is your day job, and most people’s primary source of income. this one’s easy to understand and most people’s primary source of income. You trade your time for money.
- Business Income - You own a business. You either make and sell something, or you provide a service.
- Interest Income - This is income you make from lending your money out. This might mean a CD, P2P lending, real estate crowdfunding, funding fix-and-flip debt deals, or simply money in a savings account.
- Dividend Income - This is money that’s distributed as a result of owning shares of a company.
- Rental Income - You own something and you rent it out. Probably the most common is owning a rental property, such as a multifamily apartment building (renting apartments in exchange for monthly payments).
- Capital Gains - This is money earned when you sell an investment, like stocks.
- Royalties / Licensing - You create a product, idea, or process, and you let someone use it. They pay you a small fee every time they do.
For the average millionaire, seven sources of income may be the sweet spot. But given my own experience, I believe that seven may not be enough.
How about you? How many sources of income do you have? Any desire to add on more? If so, what are you doing about it?
For more by Passive Income M.D., check out his site here.