They say that the average millionaire has seven streams of income. I’m not sure who “they” are but it’s an interesting concept nonetheless. I’m also not sure if this magical seven number is anywhere near accurate but having multiple streams of income is certainly advantageous. To understand how to acquire multiple income streams we need to identify the different types of income.
Earned Income
There are two ways to get earned income. Either by working for someone or working for yourself. In either case, income that you actually work for. The downside to earned income is that it is limited by time. You can have multiple earned income streams but you are limited by a 24 hour day. Earned income jobs are typically paid by the hour further limiting your earning potential. To earn a decent earned income wage you’re likely going to need to work full-time, committing at least 8 hours per day to a single stream of income. This is generally someone’s primary, if not their only stream of income.
Passive Income
Unlike earned income, there are hundreds if not thousands of ways to earn passive income. Passive income is earned with little or minimal work involved. Some popular examples of passive income streams are rental property income, interest from a bank account, and of course, dividends from an investment account. The biggest advantage to passive is that you can be earning income from 10 different streams all at the same time, even while working for your earned income. Passive income is a great way to supplement your earned income simply because it’s so hands off.
Balance Is Key
Most of us aren’t yet fortunate enough to live solely off our passive income. Until we can build our passive income streams up enough to support our lifestyle we need to find a balance between earned income and passive income. Building these passive income streams are usually done by using the income from our earned income streams. This is limiting in the same way that earned income limits our earning potential. Fortunately, as we consistently fuel these passive income streams our income as a whole grows. This allows us more opportunity to grow our passive income streams. Early on, cutting expenses, working overtime or even a side job can help get our passive income streams up and running.
Room For Growth
There’s a good reason why most millionaires have multiple streams of income. Unfortunately, becoming a millionaire with only a typical earned income will likely never happen. The beauty of passive income is that it generally has a much larger margin for growth. Things such as stock appreciation, dividend growth and appreciation on property can all dramatically increase your net worth. Making it possible for someone with an average earned income to become a millionaire too. Whether or not seven is the end all be all number of income streams for becoming a millionaire, creating multiple streams of income is extremely important for financial success.
2 Comments
For me, having multiple income streams has taken a lot of stress out of my life. In the past, I’ve relied too heavily on just one source of income, thinking things will last forever. Only to find, a year later that things actually change. So now i’m making sure I don’t rely on just source of income and will be ok if one disappears.
Great point. Having that sense of security is invaluable.