The 7 income streams you must know to build financial wealth
December 08, 2022
It doesn't matter what kind of business you run, nowadays multiple income streams are necessary for its economic success. Many businesses tend to fail because they just count on one single income; therefore, they don't count on the stability that having more than one income gives to a business. For better understanding, before we get into the well-known 7 income streams, these are the two kinds of incomes:
An active income is where you work and provide your services for the customers that pay for them. It is commonly earned in many forms like wages, tips, commissions, and the specific income from the different businesses in which you actively take part.
Also known as recurring or residual income, even if the name says "passive", there is still plenty of work done on this one. The difference is that generally work gets done early on, and later comes the income. This income is earned for acquiring an asset that continues to generate profit after you have finished the active work.
For any ambitious entrepreneurs, there's always the necessity of having multiple income streams for obvious lucrative reasons and also for a firm economic safeguard around any branch of the business.
Just in case, whether a product stops creating income or in case there's any financial crash on the way. Here we present 7 seven streams of income that can help your business be prepared for any downturn.
Earned income: This is the primary stream of income through a certain job. It is considered any taxable income that is generated from a business that you own, any kind of employment or any kind of economic benefits. It is well known that many don't go any further than the first step, and it is true that in general it just makes enough profit for your needs.
Profit income: Profit income is where you start making more than just enough money to survive as a business, and you really start making a profit. The basic formula for this is selling products for more than what they cost to make. Here you decide whether you charge for your time and the specific work you put into your products or services.
Interest income: Interest focused income consists of a certain amount of interest that has been earned during a specific period of time. Profit comes from investments that pay interest. This is where investing takes its place. You can invest to generate a passive income through interest in investing in different market options or government bonds.
Dividend income: With this kind you buy shares at a company, and you become a part owner, and thus you can generate a passive income stream. Even if the money received from dividends is not spent, you can reinvest it and use it to build what is called a nest egg. That is a popular dividend investing strategy for many people.
Rental income: Property investment is a terrific method for safeguarding money and generating passive income from rent. You can earn a very good income from real estate, but for making this kind of profit, you will need to do important inversions first.
Capital gains income: Capital gains are generated through selling assets, where the original purchase price is subtracted from the sale price. This refers to the increasing value of an asset when it's sold. Basically, a capital gain is generated when you sell an asset for more than what it cost to buy or make by you.
Royalty income: This kind of income is legally binding. It is received from giving someone the permission for the usage of your property. Therefore, royalty payments are done for the use of things such as copyrighted works, franchises, patents and even natural resources. The most common situation is that the person using the "rented" property does so to generate profit.
In conclusion, it is fundamental to focus time, efforts, and of course capital on more than one stream of productivity in a financial and business resilience focus. Diversification is a must for entrepreneurs and companies looking forward to generating success in the forms of consistent streams of income. Also, a good strategy in support is creating savings and spending schemes to help the main income in a business, protecting the capital and the stability that the business needs for existing. Therefore, always try to reinforce your streams of income, just in case something happens on the way.
At Tru Capital, we want to be an educational tool for building healthy finances for your business and provide you with the information and guidance you need to create great businesses. If you have any questions or would like more information, please call or text us to this number: 917-243-3113.