The (7) Seven Streams Of Income

There are different types of income streams which fall into (2) two basic categories: Active and Passive Incomes.

Active income requires the work to be put in with one’s time and energy in order to receive the income.

Passive income may have required the work initially to set up the business, investment account or to establish the book you may have published. However, your time or work is no longer required in order to receive the income.

The (7) seven streams of income are: Earned Income, Profit Income, Interest Income, Dividend Income, Rental Income, Capital Gains Income, and Royalty Income.

Earned Income – This is the type of income you would typically earn by exchanging your time for money. It will require physical labor and mental energy to obtain it. Whether you are paid by the hour or by salary either income is earned income.

It does not matter, if you earn this income as an employee or as an employer of your own business, it still falls within the same type of income.

Many people go all their lives only acquiring this type of income without ever asking themselves, “Is there more to all this?”

Well, actually there is according to the IRS. As earned income goes beyond what I’ve just mentioned. Which encompasses wages, salaries, tips, commissions, bonuses, net income from those who are self-employed, union strike benefits, any disability retirement benefits that are received prior to minimum retirement age, and non taxable combat pay can also be earned income if elected.

Profit Income – This is the type of income you generate after selling a good or service for more than what it cost you to acquire or offer it. It will still require your time to acquire the goods or to offer the service.

The path to entrepreneurship starts here but it doesn’t end here. To get to this level, it requires a level of risk many will never take.

“The risk is greater to those who do not believe in themselves to do whatever it takes to make it happen.”

The total revenue must exceed the total expenses of the good or service that is for sale to generate a profit. Millions of people that live their lives on only earned income dream of achieving profit income. However, dreams alone are not enough to earn this type of income.

Interest Income – This is the type of income you earn by lending your money to the bank or through your company. This type of income can be generated by Certificates of Deposit known as CDs, investing in bonds, crowdfunding real estate, and through earning interest in a savings account.

It can fall into (3) three different categories: Simple (regular) interest, accrued interest and compound interest.

Simple (regular) interest is the amount of interest that is due on the loan in regard to the principal of the loan that is outstanding.

Accrued interest would be interest that is accumulated every day that is to be paid at the end of the period.

Compound interest is any interest on interest. Interest on the principal as well as the interest that is accrued.

You really want compound interest to work for you instead of against you. I’ll go into depth more on this subject in a future blog.

Dividend Income – This is the type of income you earn by investing in companies that pay out dividends where you have ownership in that company from purchasing shares of that company. By investing in stocks many people can access this type of income.

However, many people don’t for a variety of reasons but a common one is that they simply don’t understand how they can achieve this type of income.

It is important to understand that not every company pays out a dividend. Therefore, you’ll need to know which companies actually do and have for decades. Any company that has consecutively paid out and increased their dividends for 25 years or more within the S&P 500 are known as “Dividend Aristocrats.”

Companies such as Abbot Laboratories (ABT), Johnson and Johnson (J), Coca Cola Co (KO) and many more.

This is truly passive income as it only requires an investment into the companies that offer dividends.

Some companies pay out a dividend to their shareholders monthly, quarterly or annually.

Rental Income – This type of income can be achieved through many different sectors of real estate. Commercial real estate or residential real estate have proven over time for many to be very lucrative as an investment. Many millionaires have achieved their level of success through real estate.

In the realm of residential real estate, this can be achieved through single family residential homes or multiplexes with up two to four tentants. As the owner, you can hire out a property manager or become the landlord.

This type of income can be active or passive. It is dependent upon many factors. However, the main factor lies with your involvement for this type of investment.

If you own farmland you can lease it for rental income as well. You don’t necessarily have to be the one farming it to make money on it.

Capital Gains Income – This type of income is any income you earn from your investments. This can be any high ticket item in which you made a profit. Any real estate property you have sold for a profit. However, there are some exceptions to real estate in regard to paying capital gains tax on the income from it. Other examples may be in selling a business for more than it cost you. Collectibles and even cryptocurrency in the USA.

Cryptocurrency is taxed as property to the IRS. It is viewed as a capital digital asset. Therefore, it is important to understand the (2) two types of capital gains that exist in the USA.

There are short term capital gains and long term capital gains. Short term capital gains is any realized gain on an asset within less than (1) one year of acquiring it. It is then taxed like ordinary income which is dependent upon which tax bracket you fall under for both state and federal.

If you held that asset for more than a year before you realized the gain, it will be classified as long term capital gains. Which is favored in regard to how it is taxed. Depending on how much of a gain you realized you could be taxed at 0%, 15% or 20%.

Cryptocurrency may very well be the new path to more millionaires in the near future. As the level of utility for its application has only begun to unfold across the world.

REITs are Real Estate Investment Trusts and while they are dividend payments from the companies that offer them they are taxed differently. Dependent upon the type of REIT in the stockmarket as there are different types, income from this type of investment can fall within this category.

REITs are a more passive way to invest in real estate.

Royalty Income – If you have developed, created or published a patent, trademark, or book then you may have established this type of income. Because you own the rights to what is being sold, repeatedly. This is also passive income.

Music artists that license out their music can get paid in royalties every time their song is played. The use of a business’s name or logo can also charge royalties dependent upon the licensing agreement.

Cryptocurrency has recently ventured into this level of income by the use of Non Fungible Tokens. This type of crypto token that is minted on the blockchain can verify proof of ownership and through a smart contract allow the original creator of the NFT artwork to receive a royalty payment every time the NFT is sold to another person or entity.

DISCLAIMER
This Is Not Financial Advice. This Is Only For General Informational Purposes. Do Not Take This As Financial Advice. Please Do Your Own Additional Research And Remember That Crypto Is Very Volatile And RISKY.