According to the IRS, most millionaires have these seven income streams:
1. Dividend income from stocks owned.
2. Earned income from a paychecks.
3. Rents from rental real estate.
4. Royalties from selling rights to use something they’ve written or invented.
5. Capital gains from selling appreciated assets.
6. Profits from businesses they own.
7. Interest from savings, CDs, bonds, or other lending activities.
I’m personally not interested in the “millionaire” status. Being a millionaire isn’t a big deal and may not impact your life in any significant way. Why pursue something that won’t provide any measurable life improvement? It’s similar to chasing fools gold.
I am; however, extremely interested in the income streams of millionaires and found this summary to be interesting. Of the seven income streams, I’m only interested in pursuing five of them. I have zero interest whatsoever in these two income streams:
1. Earned income from a paycheck.
2. Capital gains from selling appreciated assets.
This leaves five basic income streams to study, pursue, and possibly create. The order in which you create these various income streams dictates the ultimate success you’ll enjoy.
Most people focus on three of these income streams: earned income, interest income, and dividend income.
They spend the majority of their time earning a paycheck. This paycheck is limited by the number of hours of their life they’re willing to trade away. In addition to this time limitation, there is another expense they incur. This expense is the opportunity cost of the time lost at work. Instead of building new income streams, they continue working on their existing limited income stream: paycheck.
If these same people do create additional income streams, they’ll typically choose the two income streams offering the lowest income: dividend income (stocks) and interest income (bonds) These income streams will come from their contributions into their 401k plans.
In my humble opinion, rental income is the single most important income stream. This income stream should be our #1 priority. The main reason why is because it has the potential to reduce your need for earned income. Once you have enough rental income to walk away from your job, you now have TIME. TIME is the most important asset we have and you can now leverage your TIME to create new income streams.
You can start a new business.
You can create websites.
You can write a book.
You can invent cool stuff.
You invest your rents into dividend stocks.
You can invest your rents into bonds, CDs, etc.
You can invest your rents into other small businesses.
You can continue investing in rental real estate.
By focusing on rental income as our primary income stream, you unlock the doors to all other income streams. This same opportunity do not exist when we focus our time on earned income, dividend income, and interest income.
Rental income is your base.
Yes, I’ve shared this clip from the movie Gambler before! It’s just so damn good.
Today, my “base” is the cashflow from rental real estate. This base of monthly income gives you unlimited options.
Previously, my primary income stream (base) was the profit from business. This is back when my goal was to be millionaire. These were businesses I built and ran on a day-to-day basis. The problem with focusing our time on building a business is that eventually the business will own us. We think we own the business, but we don’t. The business ultimately takes over our lives and ends up control us. We’re always working, even when we’re not. Our thoughts become obsessed with business opportunities and problems.
We’re always working to generate leads, make payroll, increase sales, deal with problems, hire/fire employees….
You’re never free when you own a business. NEVER.
These same ongoing challenges do not apply to rental real estate. Sure, we have challenges with rental real estate. These challenges are temporary and typically revolve around vacancies. Once these vacancies are filled with qualified tenants, we have our freedom back.
It all boils down to which income stream you set as your priority.