Types of Income – What are the different types of income? How many income streams do rich people have? Let’s try to explore this in detail with an example.
Once, two friends were talking with each other. The first friend asked to second –
How many hours do you work in a day?
The second friend says approx 12 hours.
In which, I work 7-8 hours in my full-time job and 3-4 hours in my part-time job.
Now the second friend asks the first one how many hours do you work in a day?
The first friend says I work 400 hours a day.
Friends say it is impossible. How you can work 400 hours a day because there are only 24 hours in a day?
The first friend explained that he has opened a consultancy firm, in which there are a total of 50 employees and every employee works approx 8 hours. If you calculate, (8×50) then this figure reached approx 400 hours per day.
Here one friend talking about earned income while another is talking about business income.
In the world, approximately 90% of people make money with Earned Income, and in Earned Income, you get paid only for the hours you have worked and no one can work more than 20 hours in a day.
For this reason, you can only earn money in a limited amount with earned income. Earned income can never give you financial freedom.
While the rich people do not depend on a single income source. They have at least 7 income sources.
By which they get money regularly.
In which, some are active income and some are passive income, some are highly taxable, and some are non-taxable.
It is said that rich people have 7 income sources but that’s not the whole truth, because it is not necessary that every rich person has 7 income sources but they have multiple income sources.
So let’s see the 7 types of income that the rich likes.
7 Types Of Income That Rich People Have But Poor Don’t
#1 Earned Income
The first and very common source of income is Earned Income. This income is also known as active income because you give your time to earn money and you get paid till you work.
If you stop working then you stop getting money. This is the point from where everyone starts.
From watchman to CEO everyone starts from the Earned Income and this is the safe way to start your journey. But living here for a long time with earned income is dangerous.
Because here you work according to the clock and you can work limited and earn limited money in hours. Earned Income is good for starting time but you must make other sources of income after some time.
Because this source of income is highly taxable, the more you earn, the more you have to pay taxes. And in some cases, this tax is 30%. This means after some threshold your half income will go to the government pocket.
Earned Income is starting and a wonderful way to earn money.
But if you want financial safety then you must find other sources to earn money.
#2 Business Income
With this income, you become an entrepreneur the employee. The meaning of business income is to sell any products at a higher value than their market price.
Whether it is a physical product or a digital product. Business income can be of two types Active Income and Passive Income.
If you make a product by your hand then it is an Active Income. In this also, you will get the money until you work.
For example, handcrafted items and paintings, if you sell by making yourself then it is an Active Income.
You can’t scale this business on a large scale. But If you only design the product and it is made by some other cases like designed by Apple in California and made in China. So it is a scalable income.
Because if you set up the business system once or if you hire the employees then you get free time. That can be used to build other income sources.
Before starting any business, you must see whether your business is scalable or not, and if it is scalable, then how much you can scale.
#3 Interest Income
One of the oldest business models in the world says that money attracts money. This means in this income money works for you.
Whenever you give money to someone and you got money with interest then this is called interest income.
This income is passive because you don’t have to work actively to earn this. FD, RD, Bank deposits, and Government bonds are some examples of Interest Income.
#4 Dividend Income
You get the dividend income when you buy some shares of a company.
Then you also have some ownership rights on that company and if that company earns profit then you also become entitled to that profit and you get some part of that profit in the form of dividends.
Dividends are generally declared every 3 months but it is not necessary that every company gives you dividends. Every company has its own way of giving dividends.
For example, if I have 10000 shares of an XYZ company and if that company gave a dividend of ₹ 5 per share.
It means I will get a total dividend of 10000×5 which is ₹50000.
#5 Rental Income
If you give anything to others to use, and you get some money as rent then this is called Rental Income.
This is also a type of passive income. Many people give their property to rent and they think that this is the only way to earn rental income. But it is not necessary that you have to invest much to earn rental income. You can also give things on rent having less investment.
For example, you can give your equipment for rent, you can give your car for rent and you can rent instruments to someone like a speaker system for the event, etc. The best example of the Rental Income is Ramesh Babu.
He is a barber by its profession but he has more than 400 luxury cars. In which all luxury cars are involved from Jaguar to Rolls Royce.
He has also started the rental service for these luxury cars apart from his main profession and today he is a billionaire.
#6 Capital Gains
This is the source of income that can make you a millionaire in real. Here we acquire assets like Real estate and Stock, Bonds, and Crypto and we sell them at higher prices.
Like if you buy a share in ₹100 and sell it in ₹150 then ₹50 is your capital gain.
Same way if you buy a property for 2 crores and after waiting some years you sell it for 5 crores then your Capital Gain is 3 crores.
Capital Gain income is different from business income. Because here you are not manufacturing any products or services, you are only holding the assets.
This provides a passive income in the future due to appreciation. But most of the time we buy a product whose value decreases with time like smartphones, cars, TVs, bikes, etc.
But to get the Capital Gain, you have to invest your money in the thing whose value can be increased in the future. Like gold, silver, property, share, etc.
#7 Royalty income
This is my personal favorite income source. Royalty income is most popular among content creators like bloggers, YouTubers, music artists, or video creators.
Royalty income is a continuous income that you get for your particular work. Like, you made a movie that people would watch for years.
You wrote a book that people purchase continuously or whenever the creation created by you is purchased or subscribed then you get income.
For example, when a music artist makes music he reaches the public through music streaming services and whenever that song is played, then that artist will get income.
If we take the example of author J.K. Rowling, she wrote the Horry Potter one time.
But today’s also if someone buys books, games, or toys of Harry Potter or even someone visits the theme park of Harry Potter then some royalty means some money goes to J.K. Rowling’s Pocket.
In short, she had worked once but she generated multiple sources of income by converting them into many different forms.
So, these are 7 Income Sources.
Over to You
Well, you don’t have to try to earn from all the sources together.
First, try the first source of income and if you started generating some income then come to other sources of income.
Most people know only one or two ways of income sources. But friends, the more types of income sources you will have, you will be able to live a more secure and luxurious life.
I have a question for you which types of income sources do you like the most? and which new income source you would like to add to your life?
You can ping me at my email address sk@moneyexcel.com.
