Written by: Jorge Contreras, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
"Don't put all your eggs in one basket" is a common advice we'd get from our elders when it comes to managing our resources. And it's pretty solid advice that apparently the richest people in the world also follow.
Now, becoming a millionaire may not be part of your bucket list so you’re not thinking about adding more income streams at the moment. However, there are tons of benefits that you can get from having multiple sources too. So today we’ve listed the 7 main income streams, where to find them, and how to get started with one of them. Let’s go!
What are the 7 main income streams?
According to the Internal Revenue Service or IRS, these 7 income streams are the main sources for most Americans. They are:
1. Earned Income
Also known as salary, this type of income is what you get when you're employed. You could be working for a public or private company and get compensated for the time or service that you render.
Most people start with this source because it's the easiest to implement. All you need for capital is your time, effort, and skills you can be trained for. But while some people branch out and add other income streams, most folks stay here until retirement.
2. Profit Income
This is the kind of income you get when you provide services or products to gain profit. For example, selling computer parts you sourced from somewhere, making scented candles, or opening a bakery. What you get after selling your products or services, minus the capital you spent, is your profit.
This can be a good side hustle to supplement other streams, like your salary. You can also have multiple of these for-profit businesses.
3. Interest Income
This stream uses the power of compound interest to earn passive income. One great example of this is when you deposit money in a bank and it starts gaining interest over time. But where does this additional money come from? Well, it's from people who get loans from the bank.
The bank temporarily uses your money, adds its own rate, and gives you a percentage of the interest from other people's payments. The drawback of this though is that you don't get all of the paid interest because the bank will get their percentage too.
4. Dividend Income
When you buy stocks or shares from a company, you technically become a part owner of that business. This means that you will also be entitled to whatever profits they'll get. Dividend income works through this system. This income stream gives you the option to get your share of the profit through monthly, quarterly, or annual payments.
5. Capital Gains Income
This comes from buying and selling assets. If you buy stocks and shares worth $100 and then sell them for $120, your capital gain is $20. This is a pretty good business if you like getting profit in lump sums rather than in staggering amounts. Other examples of assets you buy and sell are art, stocks, or real estate properties.
6. Royalty Income
If you're a creative individual, you can also receive royalty income for the public usage of your crafts. You can write a novel, a song, or draw paintings and have it licensed to you. This way, you can create something unique and then receive commissions for your work to be exhibited or used in public domains. One good example? Mariah Carey's songs during the Christmas season.
7. Rental Income
If you own a property that you’re willing to rent out to other people for long-term or short-term durations, you can get passive income from them too. Property investment is an excellent way of making money work for you because you can buy a certain property, and use it to get passive income from your renters.
Why should you have different sources of income?
While the average Joe has 1 or 2 of these income streams, millionaires have 6 to 7 of them. Sometimes they even combine passive streams with their main job. And this makes all the difference in their financial status.
Most people spend their lives working as employees and earning monthly salaries. However, this income stream is minimal. Mainly because you can only earn as much as your company or employer allows. Granted, you can take overtime tasks and work for bigger commissions and incentives.
But if you think about it, all of these are also in exchange for the energy, effort, and time you may not be able to get back. On the other hand, diversifying your income streams and including passive ones will give you more time freedom. You're still earning but with lesser work on your plate.
Another good reason to add more income sources is the peace of mind it can give you. The economy has always been unstable which means that public and private companies don't have the security of staying afloat. Having other income streams will give you enough independence to work for companies without relying too much on them for the future of your finances.
Which income stream is right for you?
Now that you know the financial sources you can tap into and why you should try getting into them, you might be wondering where you should start. The answer to this question lies in your own financial goals. How much do you want to earn? Why do you want to earn more? And what’s your risk tolerance in case the capital you put up in some of these sources doesn’t come back to you?
All of these are factors to consider when looking for a new income stream because each one of them has their own pros and cons. However, if you’re a beginner, I’d ideally recommend starting with the ones that are easy to understand. Buying and selling stocks and assets can be overwhelming for some people.
You should also choose a business that you can put up even if you don’t have huge capital. With that said, I’d recommend starting off with Rental Properties. Here are some of the reasons why:
Long-term rentals can give a stable income monthly, while short-term rentals, albeit unsteady, will allow you to earn bigger for the month.
It’s also passive so you don’t have to constantly work on it every day, and you’ll still get income even when you’re on vacation. This gives you more time to start venturing on other income streams too.
It’s scalable, meaning you can grow from one rental property and earn enough to set up more.
You can start a rental property business even without buying or owning a single property.
The last one is sort of a hack that not everyone knows about. Yes, you can start a short-term rental business even WITHOUT owning properties. And there are two ways to do this:
One is through Subleasing, and the other is through Cohosting.
Subleasing is when you legally use other people’s property for your short-term rental business. You can do this by finding properties for rent and asking for permission from the landlord if you can use them for your business. Once you get an okay, you can launch it on online platforms like Airbnb and set up rates for your guests.
Another method is through Cohosting where instead of buying, owning, or renting other people’s property, you help their owners instead. You can offer managerial services for their listings and get a percentage of the income or help them find new properties to launch.
Now, these are just some of the strategies to get you started with a rental income business and add it as one of your income sources. The good thing about both of these strategies is that they’ll let you learn more about the business while allowing you to earn on the side. And this is why it’s a great passive income source to try even if you’re just a beginner.
If you want to know more about Subleasing and Cohosting on Airbnb, we have a free training guide to walk you through them. Download and check out our free training guide here.
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Jorge Contreras, Executive Contributor Brainz Magazine
From poverty to a million-dollar business, Jorge Contreras is a real estate investor and coach. He started his real estate journey over 10 years ago, and he launched his Airbnb business 5 years ago. Before that, Jorge was overworked and underpaid. He barely had time to spend with his family, and his business wasn't exactly thriving. Once he got into real estate, he realized the potential, especially with Airbnb and short-term rentals. When he became a millionaire before the age of 30, he decided to share his knowledge with all the people who have the need to spend more time with their families and less time working. Jorge has already helped over 3000+ people reach their goals with Airbnb.
