Financial stability and success is the goal of every responsible person and to achieve that it is mandatory to have uninterrupted cash flow all the time to secure the future. This is only possible with more than one source of income as recommended by financial experts. It is estimated that the average millionaire has at least 7 sources of income to generate cash flow. On the other hand average person has one source of income mostly from their job that makes them financially dependent as one can’t rely on a 9-5 job for all the expenses and future savings.
For professional growth in this fast developing world, one must have knowledge and understanding of different ways of generating income for economic security and stability. There are different ways of generating income like active or passive income. Some of the best ways to have a better financial future are as follows
Earned Income
It is active income that is the most common source of income and it is when you exchange time with money. It is the starting point of many millionaires but the dangerous point is to get stuck in that income. It is also the highest tax form of income and can go all the way up to 40% of taxes. Some people in this type of income have to give almost half of their income in tax depending upon their income. That’s why it is recommended to have some source of passive income as well along with active income.
Profit Income
The income produced by selling products or services for more than the cost to make or buy them thus establishing a small side business that would be in your control. It is one of the best ways to grow professionally from employer to entrepreneur. Starting a business usually requires a lot of investment but it has become much easier in recent years with the help of the internet whether it’s about selling a physical product or a digital product. It can be both active and passive income depending on business models.
- If you are creative then you can create a product and promote and sell it in different market places like Shark Tank Style. It is more like an active income and a bit more difficult to scale.
- But if you have a digital product or a manufacturer making products for you it is more likely to become a passive income that will keep growing with time.
- Another way of generating income is to sell your skill by teaching it to others via different websites like Teachable.com to get a good start.
- Selling information products like e-book, audio or video courses can also be a good source of income as nowadays such courses can easily be distributed and sold through different websites like Coursera or SkillShare etc. Some financial advisors recommend the ‘freemium model” i.e., free content is available at the start but it is charged for detailed information; as the free content demonstrates the level of your expertise to the reader.
There are two main types of profit income.
- Individual profit income
It is a small-scale profit income in a way either you create a product yourself or flip a product on different market places. That is considered one of the best and comparatively easier ways to add additional sources of income as there are plenty of online sales platforms available nowadays like Amazon or eBay. For example, if you are good at making artificial jewelry you can have a source of income by selling it on Etsy.
- Business Profit Income
It is large-scale profit income and involves establishing a business or hiring a manufacturer to produce products so that you can have time to consider other aspects of the company. It is most profitable by dealing with digital products as they don’t need storage or shipping that’s why they are extremely scalable.
These two types have different tax perspectives. In the case of individual profit income tax is almost the same as the earned income while business you can take many tax advantages by forming cooperation
Affiliate marketing
It is the passive income generated by promoting other’s products just by adding their link on your social media account. On clicking a link and purchasing from a third party, the siter gets a commission of about 3-7%. Thus to generate serious income, significant traffic to your site is necessary. It is considered a good source of income especially for website owners, bloggers and influencers. Some of the best-known affiliate partners are Amazon, eBay and ShareASale along with Instagram and TikTok.
Blogging is trending nowadays as one of the good ways to generate income. If you are good at writing and want to write on a specific topic it can bring affiliate or advertorial income in the long term.
Interest income
It is income generated by taking interest from the money you lend. It is also the type of passive income as active involvement is not needed. In the case of peer-to-peer loan, it is advisable to always involve third-party intermediary such as Prosper.com or Lending club to ensure return with profit. Lending money to a bank, company or government is safer as they offer a 1-4% return rate per year. There might be fewer more ways with creativity but can be risky. Always consider these two things while lending money
- Always prefer lending smaller amount over multiple loans to diversify your lending portfolio
- Before making informed picks, analyze historical data on the prospective borrowers.
It is advisable by financial experts not to invest all your money in one place rather diversify it by either investing in ETF or mutual funds
Dividend income
It is the passive income as you invest initially to become a shareholder and then receive regular payments from the company into your brokerage account. Choosing the right stock is very important in this type of investment. As a shareholder, you are a part of the company and whenever there is a profit you will get your share. The number of shares you own determines your payout i.e., the more the shares higher will be the payout. Depending on what type of dividend you have you can pay lower tax with qualified dividend; much lower than the earned income.
Rental income
It is the income generated by buying and lending a property to somebody else in exchange for money. It typically comes from buying real estate and renting it out to the people as an additional source of income. Other than a house, it also includes equipment for industries, cars, instruments or commercial properties as well that can be rented to businessmen. But it is suggested to consider the following points before starting this by business
- Return you want from the investment
- Property’s total cost and expenses
- Financial risks of owning the property
Residual or Royalty Income
This type of income means that you get to pay even after your work is done like writing a book, working in a movie or even a YouTube channel that will continue to generate income. In other words, it is the money you make by letting your people use your ideas such as music or books. For example, a publishing company prints and distributes the book. As long as people keep buying the books, the author continues to get the money. There can be multiple royalties collected from the same property like an author can get money from a book, movie based on it and the character.
- Writing a book is not so difficult nowadays due to different platforms like CreateSpace. This type of creativity demands passion, time and courage to put ideas forward.
- You can turn your passion like video games or music into content and earn via YouTube streaming. Good quality content attracts advertisers and sponsors thus generate income.
Always follow your passion and look for ways to monetize it as well. First, start a small project and then keep expanding it. As long as people are buying your creativity you will get royal payments as these products are based on your original property
Capital Gains
Capital gain is the income that you get when an asset that is appreciated or value is sold like real state or stock. It is not the same as profit income because you are not buying or making the product. Here you have valuable assets but you have no control over price. Taxes are much lower as it ranges between 15-20% of the income you are generating or even 0% in case of real estate. The profit you gain can be reinvested in the market that can yearly increase your net worth.
Knowledge and understanding of different ways of generating income help choose a better option to make the future secure. The most important step is to take a step based on your passion, dare to start it and not letting anything stand in your financial success. Once you master the business model, generating constant cash flow will be easy for you.