- Earned Income
- Profit Income
- Interest Income
- Dividend Income
- Rental Income
- Capital Gains Income
- Royalty Income
Earned Income
Your main source of income from a job is earned income. Most of us begin here, and many of us stop there. The term “just over broke” refers to how severely limiting earned income is for the majority of people.
In other words, you only make enough money to get by. Certainly, there are positions that pay exceptionally well, but these are the exceptions, not the rule. It takes taking risks and moving into profit income to move beyond a job and launch your own business.
Profit Income
You use the basis of profit income when you sell a good or service for more than it costs. You could start a retail business and sell goods, provide expert services and bill for your time, or do both.
The transition from earned income to profit income is one of the most difficult steps, but many employees strive to achieve it. Being an entrepreneur or going self-employed can be risky and difficult.
Interest Income
You or your company is losing money if you have extra money in your bank account. You can invest your money in a variety of ways to generate passive income.
Consider saving it in a savings plan and utilizing compound interest to generate a passive income. Another safe investment that yields interest is purchasing government bonds.
Dividend Income
You can receive dividend payments when you purchase shares of a company, making you a part-owner of that business. Investments in businesses at the right time can produce excellent passive income streams.
Rental Income
Investing in real estate is a great way to safeguard your funds and increase your rental income. There are two drawbacks to this source of income. First, unless it is a component of an investment scheme, it requires a sizable initial investment. Second, if you might need the money right away, this is not for you because releasing the money can be expensive and time-consuming.
Capital Gains Income
You may earn money from buying and selling assets, which is referred to as capital gains. For instance, the capital gain is $20 if you purchase stocks and shares for $100 and then sell them for $120.
Since each nation has different regulations, it is imperative to first speak with an accountant about capital gains. Your profit might be completely eliminated by capital gains tax, depending on the sold asset.
Royalty Income
By creating something special and charging individuals and companies to use it, you can generate passive income. One good example is musicians. Musicians typically have contracts with a specific label, like Virgin Records. The musicians are paid by the record company, who also produces, markets, and sells the records.
Every time an album is sold or played in public, the musicians are compensated with royalties. Elton John and other well-known musicians receive millions in royalties for performing their music.
Key learnings
- Income streams are essential to the operation of your business.
- Having multiple sources of income will help you generate more cash.
- Businesses, like Virgin, do this by starting with one product and diversifying their offerings.
- You can effectively diversify your income streams by understanding the various types of income.
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