7 Income Streams of Millionaires – How to Accumulate Wealth
Statistically, millionaires tend to have at least seven streams of income.
Generally, income is divided into two categories: passive and active.
You earn active income when you work, that is, per the hour, per month, etc. If you do not work, you do not get paid.
Passive income is earned repeatedly for a single action or investment. It is not related to you working actively.
You still need to work for passive income but the payment is not tied directly to the amount of hours you work.
How to Accumulate Wealth
Accumulating wealth is not that difficult. Here is what you have to do:
- Sell your time and earn money.
- Make sure your expenses are less than your income.
- Invest what you save so it grows.
The only problem here is Maslow’s Hierarchy of Needs. You need a house, food and other basic needs which cost money.
In a perfect world, it would be easy to use money from your day job to build a huge successful business. In reality, that money goes to accommodation, food and clothes.
Subject to Financial Gravity
Assume that your net worth is an airplane. Your goal is to make it airborne and soar high. Your expenses determine the size and weight of your plane. The heavier the plane, the harder it is to fly it. Only when your income (thrust) exceeds your expenses (gravity) will you be able to take off.
Begin with Active and Build Passive
Use what you have for now—active income from your job—and save enough to create a passive income stream.
On matters saving, there are two concepts:
Earn more: focus on making more money either through side hustles or businesses.
Save more: cut your expenses and live frugally.
Ideally, do both.
When you cut expenses, your disposable income increases immediately. On the other hand, earning more is a long-term thing.
Save as much as possible, this cannot be emphasized enough.
The Passive Streams
You can either build your own business using your savings and reap from that or you can lend someone else your savings. They will use the money to build something valuable and pay you back for your money.
As you build your business, you will have to give up active income and work for free, initially, before it becomes profitable. Think of it as volunteering at your business. In future you will reap both passive and active income. While you are doing this, your expenses will still need to be paid. This means that your business will either be a side hustle for a while or you will be relying on your savings.
When you lend out the money, someone else will be doing the heavy lifting.
Common Streams of Passive Income
- Interest from various loans
- Dividends from partnerships or investments
- Capital gains from selling investments
- Royalties from licensing or selling products
- Rental income from you real estate property
- Business income