Have you come across the claim that most millionaires have seven income streams?
I attempted to locate a study or official source to back up this claim but came up empty-handed. Regardless, seven seems like a reasonable figure.
But the real question is – how can one achieve these streams? [Here’s a list of passive income ideas if you’re interested]
And once established, how do you nurture and expand them?
It’s straightforward: more money attracts even more money. For instance, 1% of $100 is just $1. However, 1% of $100,000 is a substantial $1,000.
Indeed, wealth attracts more wealth. Here’s how the wealthy keep multiplying their assets.
Active vs. Passive Income:
Let’s delve into the concept of income.
Income is categorized into two types: active and passive.
Active income is the money you earn by directly trading your time or services, like working at McDonald’s or in an office setting. If you stop working, you stop earning.
On the other hand, passive income isn’t directly proportional to the time or effort you invest. Earnings from interest and dividends are typical examples. It’s important to note that passive income doesn’t mean no effort. Even ‘passive’ ventures like owning rental properties require some involvement.
Wealth Accumulation – Simplified:
To accumulate wealth, you:
- Trade time for money,
- Spend less than what you earn,
- Let your savings grow with minimal intervention.
The main challenge? Our limited time on Earth.
Our heart will beat roughly 2.21 billion times, translating to about 70 years if it beats 60 times a minute. Each heartbeat counts.
Another significant factor is our basic needs, represented by Maslow’s Hierarchy of Needs. The immediate need for shelter and food often requires a steady income, hence the necessity for a stable job.
These basic needs and immediate financial responsibilities can be termed as ‘financial gravity’.
Overcoming Financial Gravity:
Imagine your net worth as an aircraft aiming to fly. Every choice you make – where and how you live, your spending habits – determines the aircraft’s weight. To take off, your income (thrust) must surpass your expenses (gravity).
Eventually, passive income (akin to a rocket’s propulsion) will dominate, enabling your net worth to skyrocket.
Building Income Streams:
Start by enhancing your active income (like your job). Once you’ve saved sufficiently, transition to building passive income.
Regarding savings, there are two main strategies:
- Save more – focusing on reducing expenses.
- Earn more – exploring additional revenue streams.
The key is to strike a balance between the two. Immediate savings, such as cutting unnecessary expenses, can help fund long-term passive income sources.
Understanding Passive Income:
Generally, passive income falls into:
- Creating something valuable and monetizing it.
- Lending money to others who then generate value.
Both require savings.
Familiar Passive Income Sources:
Some recognized passive income streams include:
- Interest from savings accounts or loans.
- Dividends from stock market investments or partnerships.
- Capital Gains from selling investments.
- Royalties from licensing created or purchased content.
- Rental Income from properties.
- Business Income – not entirely passive but can generate earnings without continual involvement.
When people mention “7 streams of income”, they refer to diverse sources, not just diverse types.
My Journey to Multiple Income Streams:
Back in the early 2000s, while working a regular job and dating my future wife, I began a blog, which eventually morphed into a business. My frugal lifestyle allowed me to save and invest the blog’s profits. Over time, I diversified my investments, establishing several passive income sources.
