7 Types of Income – Path to Become a Millionaire (IRS Study)

Are you interested in knowing the types of income millionaires have to make money? I think everyone is interested and should be. This is because you should think about getting financial freedom. You should also think about stopping living from paycheck to paycheck. Paychecks cost you a lot. There is a limit on how much work you do and that means there is a limit on how much you earn. Furthermore, paychecks also make you lose the opportunity cost of the time you spend on earning paychecks. 

Therefore, it is imperative to learn about new ways to enhance your income. Enhancing income entails expanding your income stream. That said, learning about the types of income millionaires have. Most millionaires have 7 types of income streams according to the IRS. What are these? Let’s find out in this detailed guide.

Types of income millionaires have

Let’s start by discussing how to increase your income before talking about 7 types of income millionaires have. As you know, there are two ways to make money – active and passive.

Active ways of making money involve working and getting paid in return. Conversely, passive ways of making money don’t involve active work. All typical ways of making passive income involve active work only upfront. However, once you are done with that work, passive income starts flowing in. And most importantly, don’t ever think about making passive income without efforts upfront. If you do, you are going to face consequences. For instance, if you invest in dividend stocks without proper research, you are going to face a lot of problems. 

So, these are the ways to make money. However, making money isn’t going to make you a millionaire. The key to becoming a millionaire is how to accumulate wealth and become a millionaire. The fact is, most people earn a lot but they don’t ever get financial freedom. Why is it so? Because they don’t follow the following golden rules to accumulate wealth. 

• Invest your time to make money
• Spend after saving a significant part of your income
• Invest what you save to grow your money

Furthermore, think about growing your active ways of making money if you don’t have other resources to make money. Earn more money as well as cut your expenses short to save more money. Afterward, when the time comes, invest your savings to earn passive income such as dividends. 

Let’s head back to our main topic – 7 types of income millionaires have 

7 types of income millionaires have 

There are 7 types of income millionaires have to build their fortune. These are common types that almost all millionaires share. Let’s discuss these types one by one. 

1. Earned income

The first and the commonest type of income millionaires have is earned it. Earned income refers to the income stream from your job and most people rely on it. However, living paycheck to paycheck is a huge mistake that causes a lot of problems for you. Additionally, you can expect to get your salary or wages increased up to a limit. Because there is a limit on your working hours. That means you are trading your money and precious time for dollars to cover your living expenses. 

So, what if you have a job and want to increase your earned income? It is quite obvious. You can either work more or work smart. The first option is to work extra hours or find another job with a better salary. You can also get another job to work in the evening. But that is parallel to burning your energies just to meet your living expenses. You are also a human, not a machine. So, the second option is the best way to increase your earned income. 

The second way is to work smart like millionaires. What about working on your skills and efficiency? For instance, you can learn skills to become a sales manager. In other words, learn skills and gain more knowledge to get to a better position in your workplace. And learning skills and gaining knowledge isn’t as difficult as it was in the past. You can find a variety of courses, free and paid, to achieve your goals. 

2. Rental income

Rental income is perhaps the easiest way to earn passive income. What you have to do is purchase an apartment or a commercial property and start earning rentals from your tenants. So, you see, it is quite easy as well as the safest way of making extra money. Additionally, the value of your property will also continue to rise and that’s quite a bargain. 

If you conduct research on millionaires, you will find most of them own lots of real estate properties. They own homes, apartments, and commercial real estate properties. However, it is important to decide carefully where you need to invest for more rental income. For instance, buying real estate in popular areas or neighborhoods gives you more income than others. 

3. Interest

An interest income stream is other types of income millionaires share among themselves. As you know, there are multiple sources to book interest income. However, loans or interest-bearing deposits are the most common and popular sources. So, you can deposit your savings into an interest-bearing deposit account to start earning interest. Secondly, you can loan out to individuals or companies to get interest.

Although interest rates are low and you earn very little through interest, it is a type of income that requires little effort. How so? Because once you lend money or deposit money into an interest-bearing account, you start getting interest payments at the end of each month without doing anything. 

4. Dividends

Dividend income is one of the most common types of income millionaires share. It is income from dividend shares you own in a company. Dividend income is also among the commonest passive income streams as you don’t have to actively buy or sell stocks to earn it. Instead, dividend income keeps flowing in after you buy dividend stocks. However, you have to do a significant effort before enjoying rewards. In fact, choosing stocks for dividends is a very tricky part.

The key is to choose dividend stocks with the ultimate care. You have to conduct a lot of research to find companies with rich histories and strong financial health. It is imperative because investing is risky. There are risks you need to think of. For example, you are facing a risk of the company going out of business because of liquidation. Moreover, you also need to understand the fact that stable companies don’t offer higher dividend yields. Companies offering higher dividends are riskier. Therefore, always go for stable companies. The tip here is to seek the services of a professional before investing in dividend stocks. 

5. Capital gains

Capital gains refer to money you earn through selling assets you own. Popular assets for capital gains include stocks, real estate properties, paintings, coin collections, etc. Once you purchase an asset, the value of the asset increases. When you sell your asset, the difference between the sale price and the purchase price. Furthermore, capital gains seem synonymous with investment income. However, there are key differences. For instance, when looking for capital gains, you purchase assets purely for selling at profit. On the other hand, investment income involves rentals, dividends, interest, etc.

The key to making capital gains is to choose an asset with a lot of care. The rule is simple – buy low, sell high. However, the implementation isn’t that simple. Choose assets that offer higher returns. For example, choose undervalued stocks and sell them when their value increases. Similarly, purchase real-estate properties at a low price and sell at a high. Additionally, capital gains are subject to tax implications. Therefore, it is important to consult a tax professional before selling your asset for capital gains. 

6. Royalties

Royalties are another type of income millionaires have. It is income you earn when others use your property or borrow it. Anything you buy or create can be your source to earn royalties. For example, if you are good at writing, you can write a book. Your publisher will publish, distribute, and sell your book. You will get a share as a royalty on each sale of the book. 

However, if you aren’t good at writing, you can get an author to write a book for you. You can also purchase the work from an author to establish a passive income source from royalties. Additionally, writing and self-publishing ebooks is another way to make money through royalties. In fact, ebooks have become quite popular through the courtesy of the internet. You can find many authors who have established libraries of their ebooks on Amazon and other platforms. Apart from books, you can also find other ways to earn royalties. For instance, you can get a mobile application developed by a developer and start earning royalties. So, the sky is the limit. What you have to do is find a way.

7. Business income

As you know, business income is the money you earn as profit from your business. It is hard-earned money as you have to put a lot of effort into establishing and running your business. It is confusing, however, to consider business income as passive income or active income. Active income requires active involvement and that is what you do when you run a business. Conversely, you are not doing all the hard work on your own to earn every penny. Therefore, it can also be considered passive income. Business income is the crucial one to get financial freedom irrespective of whether you consider it active or passive income. 

Is it easy to establish a business these days? It is and it isn’t. Why so? Because it entails a lot of effort to start a business. Even if you start a business, it requires a lot of struggle to taste success. It isn’t difficult as well to start a business because of the courtesy of the internet. You can advertise, sell products, or offer services and earn money. The key is to choose a sector where competition is low and the odds of success are in your favor. 

The wrap-up

Now you know about the 7 types of income millionaires share among themselves. These seven income streams keep flowing in and enrich the lives of these people. Is it difficult to get these income streams to turn your way? I guess not. You can also start earning money through any one or more of these sources with little effort. The key is to start saving today instead of waiting for tomorrow. Start saving today so that you can start investing as soon as possible. Always remember that having multiple income streams ensures financial freedom. It also makes you recession-proof as you have different sources to make money. So, start saving today for a better future.