7 Types of Income Millionaires Have [How the Rich Make Money]

Summary

This video explores the seven streams of income that contribute to the financial success of the average millionaire, contrasting them with the single income source typical of most individuals. It covers earned income, profit income, interest income, dividend income, rental income, residual and royalty income, and capital gains. Each income type is explained, highlighting the differences between active and passive income, scalability, and tax implications, encouraging viewers to diversify their income sources for financial stability and growth.

Takeaways

• 💼 The average millionaire has around seven streams of income, while the average person typically has one, usually from their job.
• 💰 Earned income, the most common source, is active income where you exchange time for money, often with a high tax rate.
• 🛒 Profit income is generated by selling products or services for more than their cost, moving from employee to entrepreneur.
• 📈 Interest income is a passive form of income from lending money to banks, companies, or governments, typically with lower returns.
• 📊 Dividend income comes from investing in stocks that pay a portion of their profits to shareholders, often with a lower tax rate than earned income.
• 🏠 Rental income is generated by renting out property or equipment, and can be scaled from residential to commercial or industrial.
• 🎥 Residual and royalty income continues to pay after the work is done, such as from movies, books, or digital content like YouTube channels.
• 📈 Capital gains income results from selling assets that have appreciated in value, like real estate or stocks, and is taxed at a lower rate than most other income forms.
• 🔄 The script emphasizes diversifying income streams to reduce financial risk and potentially increase wealth, suggesting exploring multiple avenues for income generation.
• 💡 The video encourages viewers to consider which income sources appeal to them and to plan for adding new streams to their financial portfolio.

Q & A

What is the significance of having multiple streams of income according to the script?

Having multiple streams of income allows individuals to diversify their financial sources, which can lead to greater financial stability and potentially higher earnings. It also reduces the risk of being solely dependent on one income source, such as a job.

What is the first type of income mentioned in the script and what does it entail?

The first type of income mentioned is earned income, which is income received from working a job. It includes wages, salaries, and payments to independent contractors and freelancers, and is considered active income because it involves trading time for money.

How does profit income differ from earned income?

Profit income is generated by selling products or services for more than their production or purchase cost. It can be active or passive, depending on the business model, and involves moving from being an employee to an entrepreneur. Earned income, on the other hand, is the income from employment and is typically active.

What are the two types of profit income discussed in the script?

The two types of profit income are individual or small-scale business profit income, which involves creating or flipping products manually, and scalable profit income, which comes from establishing a business that can produce products at scale, often with the help of manufacturers.

What is interest income and how is it typically generated?

Interest income is generated by collecting interest on money lent out, such as through bank CDs, bonds, or Treasury bills. It is a passive form of income since it does not require active involvement after the initial investment.

How does dividend income work and what are the tax implications?

Dividend income is received by shareholders when a company distributes a portion of its profits. The tax implications can be favorable, with qualified dividends potentially taxed at a lower rate than earned income, ranging from 0% to 20% depending on the individual's income level.

What is rental income and what are some examples of it?

Rental income is income generated from renting out property or assets to others. Examples include renting residential or commercial real estate, renting equipment, or renting out personal assets like cars or musical instruments.

What is residual and royalty income, and how does it differ from other income types?

Residual and royalty income is income that continues to be received after the work is done, such as from the ongoing sales of a book or the views of a movie. It differs from other income types because it is often a result of one-time creative work and can continue to generate income indefinitely.

How is capital gains income defined and what are the tax rates typically associated with it?

Capital gains income is income from the sale of an asset, like real estate or stocks, that has appreciated in value. The tax rates for capital gains are generally lower than for other income types, ranging from 15% to 20%, and can be reduced or eliminated through certain strategies like reinvesting in real estate.

Why is it important to understand the different types of income mentioned in the script?

Understanding the different types of income is important because it allows individuals to explore various ways to increase their income and diversify their financial portfolio. It also helps in planning for taxes and leveraging different income streams for financial growth.

What is the potential downside of relying solely on earned income as discussed in the script?

The potential downside of relying solely on earned income is that it is limited by the amount of time one can work, which is finite. Additionally, it is often subject to high tax rates, and it does not provide a continuous flow of income if work is interrupted.