The author Tom Corley did a five-year-long study and surveyed wealthy individuals on their daily habits, and then compared them with lower-earning individuals. What he discovered and learned is that most self-made millionaires generated their income from multiple sources. Here are the common streams of income self-made millionaires use to build their wealth.
1. Earned Income
Otherwise known as your salary or typical monthly income from your primary job. Earned income could be based on an hourly rate alongside bonuses, commissions and more. This remains the same whether you are employed or self-employed. This earned income is typically subject to taxes, although likely at different thresholds depending on the amount.
2. Business Income
Alongside earned income, you may receive extra income from businesses you have set up. These are otherwise known as your side hustles, and may be made up from just one source or could be multiple. It is typically found among your balance sheets, taking the difference between profit and loss. Once again, this is subject to taxes.
3. Interest Income
You’ll receive interest on your bank account savings. Ideally, it would match the level of inflation but these days, interest rates are very low. Find out your interest rate by checking your bank statements. If you have funded any loans, you are also likely to be eligible for interest as the principal amount is repaid.
4. Dividend Income
The stocks and shares you invest in may yield dividends, or you be paid via dividend if it fits with your company structure. Dividends are more commonly known as a share of the profits. For example, as the Director of an LLC, you are eligible to split your profits into twelve monthly dividend payments. Alternatively, some investments pay dividends quarterly or annually.
5. Rental Income
Once you own property, you can begin collecting rental income as an added monthly income stream. Depending on the structure of your property (whether you’ve got it under a separate company, for example), you may be subject to extra taxes, so the yield of your property income should account for this.
As a landlord, you’ll likely have a Mortgage to pay as you acquire new properties. This should also factor into your rental income pot.
6. Capital Gains
Capital Gains income is acquired through the sale of assets such as art, stocks, business, and loans. Income earned via this route is subject to capital gains tax but will often be acquired as a lump sum rather than consistently over time. Learn more about capital gains tax on the IRS website.
7. Royalties or Licensing Income
Are you a creative individual who produces music or photography content? Licensing this for specified public usage means you can create royalties as an extra stream of income. Royalties are not likely to be significant on their own, but mass production/usage of your content is likely to bring in a steady stream.