Did you know that really rich people rely on several sources of income — not just one?
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The reality is that a total of 54% of Americans live paycheck to paycheck — that’s 125 million U.S. adults, according to LendingClub and PYMNTS. Of this group, 21% struggle to pay their bills, which means they don’t have money left over after they spend what they earn. In addition, about 40% of those with annual incomes over $100,000 live paycheck to paycheck. Of those who make between $50,000 and $100,000, 53% live paycheck to paycheck. The research also said that 72% of those who make less than $50,000 per year live paycheck to paycheck.
The solution? Diversify your income streams, according to the author of Rich Habits. Of the 233 wealthy individuals Tom Corley interviewed for his book, 65% had three income streams, 45% had four income streams and 29% had five or more income streams.
Think having multiple income streams makes a lot of sense? Let’s walk through how you can make it happen for yourself.
Multiple Income Stream Sources
Does the concept of multiple income streams seem completely foreign to you? It’s quite possible that it’s never dawned on you before. In school, nobody teaches you to go after multiple income streams — typically, teachers and professors train you to go after one career, pursue that particular option and save for retirement through that one job.
So, how do you diversify your income? How do these income streams work? Let’s take a quick look at a few options, though by no means is this an exhaustive list.
If you invest in stocks, you may get dividend income from your investments. Dividend income refers to payments you receive from a company when it pays all of its shareholders for owning shares. You can calculate dividend income yield by dividing the annual dividends paid per share by the price per share. Mature, established companies will most likely pay dividends.
Earned Income from a Job
Yep, this is the one your teachers trained you for. You want to add this into the mix because it might provide you with the most security, especially if you’re working to try to launch multiple income streams early on. Think of it this way: You’ve already diversified your income stream if both you and your spouse or partner each work at a job. It’s a great start!
Billionaire Andrew Carnegie once said that 90% of millionaires got their wealth by investing in real estate. Whether that percentage actually rings true (it might be a bit of a fudge), there’s no denying that many millionaires still consider real estate one of the best investments, particularly because it’s so versatile. You can flip a house, rent it out, sell it when it appreciates in value, further develop the lot, add parcels, subdivide it — the list of options goes on forever. In addition, you may also consider buying land as another income source.
A little more difficult to come by, royalties on something you’ve trademarked or written could become a source of income. Consider author J.K. Rowling of Harry Potter fame: The New York Times estimates that the novels have raked in at least $7.7 billion. Rowling could have made at least $1.15 billion with a standard author’s royalty cut of 15%, and that’s without her theme park royalties, movie royalties and more. Obviously, that’s an extreme example, but it could happen. She has one of the most amazing rags-to-riches stories of all time.
Consider all areas in which you can profit from the sale of an asset. You can earn money on tangible assets, such as real estate or even a vehicle, or intangible assets, such as stocks and bonds. You earn capital gains when the selling price of an asset exceeds its purchase price.
About two-thirds of working millionaires were self-employed in 1996, according to The Millionaire Next Door. Then, self-employed people made up less than 20% of the workers in America but accounted for two-thirds of the millionaires. The book says that three out of four considered themselves entrepreneurs.
It was true then and it’s still relevant today.
Investments and Savings
We’ve mentioned dividends and capital gains already, but it’s important to mention the root causes of raking in dividends and capital gains: savings and investments. Whether you invest in stocks, bonds, mutual funds, retirement accounts and more, you may benefit from stock market returns, which, historically, have yielded about 10% per year over the last century.
How to Zero in on the Right Income Strategy
What does this all mean for you? Should you tackle all types of income listed above? Focus on two or three? Here’s how to decide.
Tip 1: Take a look at the options.
What appeals to you the most? How can you see the list of options working together? If you dislike the idea of real estate, don’t do it. Focus on a side business and capital gains from your investments. If you don’t want to work at a regular job anymore, focus on buying up properties and starting your own side hustle. You have to do what’s comfortable for you.
Tip 2: Develop a savings mindset.
First, save at least 10% of your income every year — though you’ll save even more if you want to become a millionaire faster. Diversifying your investments by choosing the right asset allocation, investing automatically each month and staying disciplined gives you a head start.
Tip 3: Develop new skills.
What are you good at? How can you develop it further? Whether you like to tutor kids, edit essays or coach soccer, develop skills that you can turn into a side business. If possible, turn these opportunities into passive income strategies that allow you to make money while you sleep. Continually reinvest money into your side business so you can generate new income streams.
Tip 4: Partner with others and reinvest.
Eventually, you may get to a point where you can’t do it or don’t want to do it on your own anymore. Reinvest your cash flow to grow your business. This way, you can keep building your side businesses or passive investments.
Be Like a Millionaire: Choose Your Strategy
Millionaires might have it all figured out — just like diversifying your investments, millionaires often rely on more than one way to make money.
Now that you’ve got the ideas, it’s up to you to choose the right route for you.