One thing most millionaires have in common is that they have multiple streams of income. In fact, a study done by the IRS found that self-made millionaires build up an average of seven streams of income! The research broke it down like this:
- 65% had three streams of income
- 45% had four streams of income
- 29% had five or more streams of income
The goal of creating multiple streams of income isn’t just growing your wealth — it’s diversifying your income to protect your wealth as you grow and developing passive income sources to literally make money while you sleep.
It takes time, but if you want to join the ranks of the wealthy, here are the most common income streams of the rich:
1. Earned income
Earned income is the money you make while working. Even millionaires have day jobs, at least some of them do. It’s an active income source that generally comes from your primary salary. If you’re married, then you may be able to count your spouse’s salary too.
The goal is to make enough earned income that you can invest in multiple streams of income. That’s how many wealthy people start building their streams of income, and there are a few different approaches to increasing your earned income:
- Ask for a raise: If the timing is right, getting a raise is one of the fastest strategies.
- Find a higher paying job: Start actively looking for another job that pays better or helps you save money in some way. An example would be finding a job that covers 100% of your health insurance premiums or contributes more to your retirement account.
- Start a side hustle: Having a side hustle can increase your income by $1,000 or more every month. Check out our list of best side hustles for ideas.
Once you’re generating extra cash flow, you can invest that money in developing multiple streams of income.
Another consideration is that destroying your debt or lowering your expenses will also help you invest more in other income streams. High-interest rate debt, especially credit card debt, is an excellent place to start because it only gets more expensive over time. One strategy many people use is to allocate side hustle income towards paying off debt, and then moving that money towards developing other income streams once the debt is paid off.
2. Dividend income
Dividend income is any income you earn from stocks, ETFs, mutual funds, and other similar assets held in a brokerage account. It’s considered the distribution of a company’s taxable income to its shareholders. Typically, dividend income is paid out quarterly in cash, but it may also be stock or other property.
It takes a financial investment to start earning dividend income, but the more you invest, the more money you can make from dividends. It’s a very passive source of income overall.
Some investment platforms even have dividend reinvestment programs (DRIP), which automatically reinvest your dividends to purchase more shares of the same company’s stock. That makes dividend income even more passive.
Here are a few ideas for building your multiple streams of income with dividends:
- Stash: This is a micro-investment app where you can buy fractional shares of stocks and ETFs. Plans start at $3/month, and Stash has a DRIP program to automatically purchase more shares with dividend income.
- Betterment: This robo-advisor recommends an investment portfolio that aligns with your goals, and it automatically invests dividends and rebalances whenever your portfolio drifts too far one way or the other. Betterment charges an annual fee of 0.25% of assets under management.
3. Rental income
Rental income is similar to investment income because it returns a cash flow — instead of dividends, the cash flow from rentals is a monthly rent check. As far as multiple streams of income, there are more expenses with rental income: utilities, property taxes, mortgage, repairs, etc. These all get factored into your returns.
The issue for most people starting to invest in real estate is that it requires a hefty upfront investment to start earning rental income because you’re buying a property, whether that’s a home, multi-family unit, commercial property, apartment building, etc.
But good news, there are more affordable alternatives, like real estate crowdfunding. This is when companies pool money to purchase and develop properties or shares of properties. It takes considerably less money, is more passive, and diversifies your income.
If you’re interested in earning multiple streams of income with real estate, here’s what we recommend:
- Fundrise: You can start investing in commercial real estate for as little as $10, and Fundrise is currently offering customers a $10 bonus when they get started.
- HappyNest: This crowdfunding site currently collects rents from giants like CVS and FedEx. You can invest for as little as $10, and they have an option to round up daily spending and invest the change.
- Roofstock: This platform helps find, vet, and purchase single family homes for rental income.
- FarmTogether Open to accredited investors only, you can invest in farmland and earn income as you collect rent and through appreciation.
- AcreTrader: Another farmland investment platform open to accredited investors who want to earn rental income and appreciation.
4. Business income
This income stream is exactly what it sounds like — income earned from running a business, both self-employment income or passive income if you have invested in a business.
What’s cool about this source of income is that if you think about all of the online business opportunities, owning and operating your own business is more attainable than ever before. Not only that, you can grow it in your free time.
Looking for some inspiration? Here are our favorite online business ideas:
- Blogging: There’s virtually unlimited income potential with blogging, and you can start a blog for as little as $2.95/month when you sign-up through our exclusive Bluehost link. Blogging is a slow business model overall, but our tutorial will help you get started, How to Start A Blog: Easy Step-by-Step Guide.
- Facebook and Instagram ads manager: Running Facebook or Instagram ads is simply digital marketing through two of the most popular social media platforms, and you can earn $1,000-$2,000/month per client. Learn how to get started with the Facebook Side Hustle Course.
- Etsy printables: Selling printables on Etsy is a surprisingly passive source of income because you’re creating digital files that can be sold over and over again with very little extra work. This free ebook, Seasonal Product Sales, will help you start coming up with ideas.
- Proofreading: Proofreaders are needed to put the finishing touches on all types of written content, from blog posts to sales copy. Learn more in How to Make Money Proofreading.
The online businesses above are all extremely scalable. Think about it like this: you start running Facebook ads for one business, then two, three, etc. Eventually, you hire an assistant and train another ad manager. You’re essentially building an agency from the ground up, and it's an incredibly empowering feeling!
5. Interest income
Interest income is what you earn from interest on your savings, money market, and checking accounts. The reason you earn interest is because banks lend the money you deposit to borrowers, who pay interest on their loans.
A small silver lining of Fed rate hikes is that interest rates go up on savings accounts because banks raise the interest rates on the money they lend. So now is an excellent time to up your savings game with a high interest rate savings account, like:
As far as multiple streams of income, this is one of the easiest to get started. It’s not a major source of income for most people, but it’s an easy one to start and maintain.
It’s also worth mentioning that interest rates are subject to change over time.
6. Capital gains
Capital gains come from selling assets that have appreciated and are now worth more than when you bought them. It applies to stocks, real estate, even alternative investments, like classic cars or fine wine.
This is one of the most passive ways to build multiple streams of income because you’re not actively working for appreciation.
The IRS has special tax rates on capital gains based on your income level and how long the asset was held, but taxes are only due once the asset has been sold.
Royalties are payments made for the ongoing use of an asset like copyrighted works, franchises, even natural resources. We frequently think of music when we talk about royalties, but it can be any type of intellectual property, trademark, patent, or copyright.
Royalty income is a great source of passive income, but it takes a considerable investment. Think about writing a book or patenting software — you’ve invested a ton of time and knowledge.
How to create multiple streams of income - The final word
The ultimate goal is diversifying your income because it helps you grow your wealth and protect it. This is a long-term investment in your future financial self, and here’s how you start today:
- Don’t quit your day job! Use your primary income from 9-to-5 or side hustle income to pay off debt, take care of everyday expenses, etc. Bonus, benefits like health insurance and retirement savings have serious value.
- Start investing in the stock market. With micro-investment apps like Stash, you can start investing for as little as $5.
- Invest in real estate. If you have the capital to buy rental property, it’s worth considering. Otherwise, you can passively invest in commercial real estate for as little as $10 with Fundrise.
- Start a side business and grow it on the side. From blogging to freelancing, there are incredibly profitable side businesses to add to your income.
- Get a better bank account. With interest rates on the rise, you can put your cash to work with a higher-than-average APY.
- Sell appreciated assets. From classic cars, Pokemon cards, vintage clothing, real estate, etc — selling in-demand products for more than you’ve purchased them for is how to earn capital gains.
- Write a book, make music, develop a product, etc. Royalty income is an excellent source of passive income that comes from leveraging your creativity, imagination, and ingenuity.
The seven streams of income you hear referred to when talking about millionaires are:
- Earned income from your day job or side hustles
- Dividend income from stocks, mutual funds, ETFs, etc.
- Rental income earned when you collect rents on properties you own
- Business income which is money you earn from running a business
- Interest income that comes from money held in interest-bearing accounts
- Royalty income earned from the ongoing use of music, copyrighted, trademarked, or patented products
- Capital gains income that comes selling appreciated assets