Income Source You Must Know

It is said that the average millionaire has around 7 streams of income whereas, the average person typically only has one, usually from the job which is in colossal perception financially.
If you take a look at the average millionaire they indeed have more than one stream of income generating cash flow.

Now all types of income are the same some are active some are passive some are a mix of both some are highly taxed and some can be leveraged not to have any taxes at all.
So today we are going over the seven different types of income that the average Millionaire has in their portfolio.
Let’s get started

Earned Income

The first and most common source of income is earned income this we get a job.
This includes the average worker to the CEO. Many CEOs are employed by the company, and professionals like doctors services are also included in this category.
Earned income is when you exchange time for money, called active income. This can also include freelance.
Earned income is typically the starting point for many self-made millionaires.

This is what the average person starts with and it’s a good way to get started especially if your job allows you to provide for yourself and your family, but the dangerous part is staying in this category because this type of income leverages your time which you have a limited amount of.
If you only have 24 hours in the day like everyone else so there is always a ceiling on how much money can be made in this category this is also one of the highest taxed forms of income.
Taxes in this category can go all the way up to 40% off your income meaning some people in this category pay almost half of their earnings in taxes depending on the income.

This is great as a starting point but we must know what other types of income are out there.

Profit Income

The second stream of income is profit income. This is income produced by selling products or services for more than it cost to make or buy them. This is when we move from employee to entrepreneur.
In the past starting a business requires a significant investment to buy or make the product but it has become much easier in recent years with the help of the internet.
Whether you sell a physical product or a digital product you sell a product for a higher price than it takes for you to make or buy them you are making a profit.
Now, this can be both active income or passive income depending on your business model. If you make things and sell them, then one active income is a little more difficult to scale. But if you create the product and you have a manufacturer created for you or you make a digital product that has the potential to become a passive form of income.

There are two types of profit income.
1.An individual or small-scale
2.Highly scalable business

The individual or small-scale is when you either create the product yourself or flipped products manually like on eBay or Facebook marketplace and that is a great way to add another source to your income. The scalable income comes from establishing a business by having a manufacturer, for example, get produce your products instead of doing it yourself.
This way you will have free time to focus on other aspects of your company and marketing. Another example of a highly scalable business is by using digital products, since they don’t require storage shipping or even ongoing manufacturing digital products are extremely scalable. These two types of profit Income are Taxed differently.
If you are an individual either creating the product yourself or flipping products on small scale, chances are you will be taxed the same as earned income but if you are in business you might be able to take advantage of many tax breaks by forming a company or corporation.

Interest Income

You make interest income by collecting interest on the money you lent. I don’t mean lending money to your friends. This is typically not a good idea but there are a few ways to create this form of income lending money to the bank, in the form of a bank CD, lending money to companies in form of a bond, or lending money to the government and form of Treasury.
These are typically safer ways to invest your money but are not the most lucrative many of these have between a 1 to 4% return rate per year. Now there might be a few other ways to do it with a little more creativity and higher returns but a lot more risk. This is a passive form of income because in most cases your active involvement isn’t needed.

Dividend Income

Dividend income is when you invest in stocks that pay part of their profits to the shareholders. When you buy a stock in a company, you become a shareholder whenever the company that you’ve invested in reports profits, they will send a check to their shareholders typically every quarter as a shareholder. You are part owner of the company sewing companies that distribute dividends you get a portion of the company’s profits.
Now depending on what type of dividend you have, you can pay a lower tax rate with qualified dividends. If you make, less than $38,600 in ordinary income, you pay 0% taxes on your dividend income, and it tops off at 20% if you make over $425,000, which is much lower than earned income, which can go up to a 40% tax rate.

Rental Income

Rental income typically comes from buying real estate and renting it out to other people. Now, it does not necessarily have to be home rentals. This can also include commercial properties, which is real estate, that can be rented, two businesses, or industrial, real estate, which is rented to manufacturers.
Now rental income does not have to come from Real Estate specifically. There are other ways to Creed rental income on a smaller scale for example many people rent equipment for various Industries or their car instruments, etc. Rental income is any income produced by lending, property to somebody else in exchange for money.

Residual and Royalty Income.

This type of income is when you continue to get paid after your work is done, whether you work in a movie that continues to be watched or wrote a book that continues to sell, or more recently if you built a YouTube channel that continues to be viewed, royalty income is a form of residual income. Royalty income is money you make by letting other people use your ideas or properties to make money such as music or books. Music artists, for example, allow streaming services in reporting labels to produce and sell their property to the public, therefore making royalties.

Every time a song is played or sold or when someone buys the record is a similar thing, when a Publishing Company prints and distributes a book as long as people keep buying the book, the author continues making money, now they can be multiple royalties collected from the same property.
A great example of this is the author JK Rowling. She did not only make royalties from her book sales but also from the interpretation of her books and movies in merchandise based on her characters, even though it’s been 20 years since the first Harry Potter book came out J.K. Rowling, the author still collects royalties. As long as people are buying merchandise renting or streaming the movies or buying books. She gets royalty payments because those products are based on her original property.

Capital Gains

Capital gains income is when an asset that is appreciated is sold. The most common ones are real estate and stocks, but there are many other assets, for example, if you bought a real estate property for $180000 and you sold it for $250,000 made $70,000 in the capital, gains income same goes if you bought 100 shares of a company at $20, a share, your sold. In more than 120, you made $10,000 in capital gains. Now, this is different than profit income because you’re buying or making a product and selling it for a profit here. You have assets that are appreciated in market value, you don’t have much control over the value increase. But the great thing about capital gains is that taxes paid on this type of income a much lower than most other forms of income capital gains tax rates range between 15 to 20% depending on the amount earned and they can go down to 0% such in real estate, many cases if you use your capital gains, you got from a real estate property and you reinvest it back into the market, you might be able to pay no taxes that all you can increase your net worth tax-free when building our income, most of us know, only one or two ways of creating income but knowing the different types of income and how they are made. Gives us a better opportunity of adding different sources of income to our life.

Which source of income, sounds the best to you and which one will you add to your income next mission?
Leave your answers in the comments below. I always like to see what you have to say. As always, thank you for supporting me.

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