Photo courtesy Alexander Mils on Unsplash.
Everyone wants to lead a comfortable life and in order to do so must have enough money. Though it is true that money can’t buy you happiness but it can definitely give you a decent and comfortable life. You don’t have to worry about the small daily expenses. But not everyone is blessed enough to have a huge inheritance or a high-paying job. For a common person, there are ways to have sufficient money, improve his standard of living and earn money besides his regular job. The 7 income streams that a person can have are-
1) Earned Income-
This is the income from the job. You work from 9-5 and try to meet the basic necessities of life. The job will pay you just enough to meet the basic necessities, except when you are in a very high position. Most people fall in the comfort zone of their jobs and spend the maximum amount of time working till retirement. But doing a job does not make a person truly rich. For that, a person has to break out of his comfort zone.
2) Profit Income-
The profit income is earned when you sell something for a profit i.e. you buy cheap and sell it at a higher price. This happens in the business and you can become an entrepreneur to earn profits.
A business requires an investment of money and most people don’t have money to invest at a young age. When they have money at a later stage in life, they don’t have fire in their belly and avoid taking risks. This could also be due to the increased responsibilities like the education and marriage of their children. To become an entrepreneur a person has to decide which business he wants to do or become a wholesaler, distributor, retailer, or manufacturer. But to succeed the person should have a risk-taking ability and adhere to a good plan and its implementation.
3) Interest Income-
Interest income is the returns that are generated from lending money or letting other parties use the funds. This can be the amount earned by an investor by placing money in an investment that can include the saving account, fixed deposit, national saving certificate, PPF account, post office schemes, etc.
Interest income is a source of passive income where you don’t have to do much once you lend the funds. When deposited in government schemes and banks there is not much risk involved.
A dividend is the distribution of cash to the shareholders of a company. These are distributed by the publicly listed companies as a reward to the shareholders for putting their money and result from the profits generated by a company. Large companies try to pay regular dividends and help in maximizing shareholders’ wealth through better performance that results in appreciation in the stock price. Dividend generates adequate cash flow and is a very good source of income for retired persons.
5) Rental Income-
When a property is leased out, the amount received for renting the property is called rental income. The rent is paid by the tenants to the owners of the property. Real estate assets that can be rented out include a shop, apartment, commercial real estate, condominium, row house, etc.
Real estate can be a good source of passive income as it can provide recurring income with little effort to maintain it. This could be a good source of income for people in their retired years as it provides financial security. The only drawback is that to create real estate assets you require a large amount of money.
6) Capital gains-
Capital gains occur when you sell an asset after an increase in its price. Capital gains apply to capital assets that include stocks, bonds, jewelry, real estate, etc. In Indian equity, long-term gains are levied if investments are held for more than a year. When the assets are held for less than a year it is short-term capital gains and taxed at 15%. There are different tax laws in various countries on capital gains.
7) Royalty Income-
Royalty is the payment made in order to have the right to use another person’s assets. When you allow someone to use your property, products ideas, or processes you can earn royalty. Royalty could be for copyrighted works, patents, or franchises. The payment made is often the percentage of the revenue earned from the use of the property. Example- Celebrities earn royalties from companies that use their name. If you are a writer you get a royalty for every copy of the book sold by the publishing house. The other people do hard work to generate revenues and you get a percentage of what they earn. The only thing is you have to create something unique.
There are a number of ways you can generate different revenue streams. The first thing to keep in mind is to have good savings at the beginning of your career. Save enough so that you can invest to benefit from the returns. You can search for good dividend-paying companies and invest in mutual funds or let the portfolio manager invest in the stock market. The demand for property that had collapsed in the second Covid-19 wave has recovered now and there is a good scope for renting out properties. As for getting royalty you can write eBooks and publish them on Amazon and earn a royalty income.
When you have a few sources of income you don’t have to worry about loss of income from any one of the sources as your earnings would be spread over multiple assets. You don’t have to put extra effort into earning more salary and can concentrate on your family, friends, and hobbies.