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Studying millionaires is quite interesting since they are typically average people with extraordinary attention and dedication. People who are extremely wealthy achieve this status by working otherwise than the average person—not necessarily harder or smarter. The fact that millionaires generally have many sources of income provides an intriguing glimpse into their lifestyle.
The following fascinating characteristic of millionaires was noted in a 2018 story on CNBC:
- Three sources of income account for 65% of millionaires' income.
- 45% of millionaires make money from four sources.
- Among millionaires, 29% have five or more sources of income.
Most people have at least one source of income, which is their job. They show up for work on weekdays, and after a certain number of hours, they are paid.
However, three different sources of income account for considerably over half of millionaires.
That means work plus at least two others for some people. Others may not even consider labor to be part of that.
The ability to enhance your wealth passively through the correct streams of income makes having several income sources an effective wealth-building strategy.
Here are the top four sources of income that will increase your income if you want to increase your wealth like the wealthy do:
- Property syndications
One of the fundamental components of wealth creation is passive income streams. There are only so many hours in a day for everyone on our earth. You will always reach a limit in terms of how much you can make and save, regardless of how much you can actively work. Because you can earn money while you sleep, passive income can accelerate the growth of your wealth.
The best passive income comes from real estate syndications. A syndication is a group of investors that buy a certain commercial or multi-family property. These investments typically have a five-year lifespan and yield annual returns of roughly 8%. Syndications sell the bought building on top of these above-average profits, giving investors a lump-sum payout of 30 to 50 percent occasionally at the conclusion of the five-year period.
Overall, while all investments have some danger of losing money, it's not unusual for real estate syndications to make between 80% and 100% over the course of five years. A passive investment that may grow your money by twofold every five years? This is why syndications are so effective in generating money.
- Return on investments
Having investment income is another typical form of passive income stream that will increase your wealth. Syndications are investments, but this category includes dividends from stocks and bonds and is more general. Many millionaires invest in P2P lending, own CDs, and hold shares of dividend-paying stocks like McDonald's.
The stock market is a great location to deposit your money safely as it grows and earns quarterly or monthly income as you build your wealth, even while these investments won't bring you life-changing income. Diversification is the key to creating wealth, and buying income-producing stocks or bonds will help you get there!
- Business profits
Many millionaires have increased their money through side jobs, unless they are required by their principal employer or have contractual duties to do so.
Owning a business brings you a world of countless earning opportunities, whether you're producing, selling, or offering services. Let's say you work as a developer and spend your spare time making video games. Your game might gain popularity and bring in an extra $100 per day through passive means. Suddenly, your side job is bringing in an extra $3,000 each month!
Imagine being able to defer up to $61,000 with your SEP plan from your side business while still being able to contribute $20,000 through your day job's 401(k) plan. If you do it well, you may postpone over $80,000 a year, and if you invest that money intelligently, your potential wealth is limitless! Business income, when managed properly, is essential for creating wealth.
- Licenses and royalties
Although less common, this category is nonetheless significant. If you have the chance to develop a product, concept, or method, you may be able to sell it under a license and get money each time someone uses it.
Royalties can be earned on anything; you can even establish a band and succeed in getting your music included on a streaming service. Alternately, you may start a YouTube channel and profit somewhat passively from views.
The best sources of money are from royalties and licensing because they are frequently reliable. Consider the scenario where a firm purchases your innovative waffle iron design. Every time an iron is sold, you'll make money. If so, you can anticipate a fairly stable income stream in the near future!
You need a variety of revenue streams if you want to increase your net worth. It's dangerous to rely too heavily on one source (usually a job). What occurs if you misplace it? Similar to this, if that one source of money necessitates effort, you are constrained in how much you can earn because there are only so many hours in a day.
The four sources of income listed above are excellent strategies to increase your net worth. If you haven't already, think about adding the aforementioned income streams to your portfolio to diversify it.