7 Types of Income Millionaires Have [How the Rich Make Money]
Summary
TLDRThis 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
- đŒ The average millionaire has around seven streams of income, while the average person typically has one, usually from their job.
- đ° Earned income, the most common source, is active income where you exchange time for money, often with a high tax rate.
- đ Profit income is generated by selling products or services for more than their cost, moving from employee to entrepreneur.
- đ Interest income is a passive form of income from lending money to banks, companies, or governments, typically with lower returns.
- đ 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.
- đ Rental income is generated by renting out property or equipment, and can be scaled from residential to commercial or industrial.
- đ„ Residual and royalty income continues to pay after the work is done, such as from movies, books, or digital content like YouTube channels.
- đ 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.
- đ The script emphasizes diversifying income streams to reduce financial risk and potentially increase wealth, suggesting exploring multiple avenues for income generation.
- đĄ 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.
Outlines
đŒ Income Streams for Millionaires
This paragraph discusses the financial strategies of millionaires, who typically have multiple income streams compared to the average person who relies on a single source, usually a job. It highlights the importance of diversifying income sources and introduces the concept of active versus passive income, as well as the tax implications of different income types. The paragraph emphasizes the limitations of earned income, which is often the starting point for many but can be limited by the amount of time one has to work. It also touches on the higher tax rates that can apply to this income stream, suggesting that exploring other income sources can be beneficial.
đ Exploring Diverse Income Streams
The second paragraph delves into various types of income streams that go beyond earned income. It starts with profit income, which is generated by selling products or services for more than their cost, allowing for a transition from employee to entrepreneur. The paragraph then discusses interest income, which comes from lending money and can offer a safer but less lucrative return. Dividend income is explained as profits paid by companies to their shareholders, with tax rates potentially lower than other income types. Rental income is covered next, detailing how it can be generated from real estate or other assets. Residual and royalty income is introduced as income earned after the work is done, such as from the ongoing sales of a book or views of a movie. Lastly, capital gains income is described as profits from selling appreciated assets, which can be taxed at a lower rate than other income types. The paragraph concludes by encouraging viewers to consider adding different income sources to their financial portfolio.
Mindmap
Keywords
đĄMillionaire
đĄIncome Streams
đĄEarned Income
đĄActive Income
đĄPassive Income
đĄProfit Income
đĄInterest Income
đĄDividend Income
đĄRental Income
đĄResidual and Royalty Income
đĄCapital Gains
Highlights
The average millionaire has around seven streams of income, while the average person typically has only one.
Income streams can be active, passive, or a mix, and can vary in tax implications.
Earned income is the most common and includes wages from jobs, but it is limited by the number of hours in a day.
Earned income is often the starting point for self-made millionaires but has a high tax rate.
Profit income comes from selling products or services for more than their cost and can be scaled with business growth.
Interest income is generated by lending money, such as through CDs, bonds, or Treasury bills.
Dividend income is received by shareholders when a company distributes profits.
Rental income can come from real estate or other property rentals, offering a passive income stream.
Residual and royalty income continues to be earned after the work is done, such as from book sales or movie royalties.
Capital gains income results from selling appreciated assets, often taxed at a lower rate than other income types.
Diversifying income streams can help mitigate financial risks and increase net worth.
Each income type has unique tax implications, with some offering tax advantages over others.
Digital products and online businesses have made it easier to create scalable profit income streams.
Investing in stocks that pay dividends can provide a passive income with potential tax benefits.
Rental income can be diversified beyond real estate to include equipment and vehicle rentals.
Royalty income can be collected from multiple sources based on the same intellectual property.
Capital gains can be reinvested to potentially eliminate taxes, allowing for tax-free growth of net worth.
Understanding different income types is crucial for financial planning and wealth accumulation.
Transcripts
it is said that the average millionaire
has around seven streams of income the
average person typically only has one
usually from their job which can put
them in a balloon low position
financially if you take a look at the
average millionaire it is true that they
have more than one stream of income
generating cash flow now not all types
of income are the same some are active
some are passive some are of mix of both
some are highly taxed and some can be
leveraged to not have any taxes at all
so today we are going over the seven
different types of income than the
average millionaire has in their
portfolio if you like videos about
business money in psychology make sure
subscribe and hit the belt button to not
miss any overvalue pact videos and let's
get started the first and most common
source of income is earned income this
is what you get from a job this includes
the average worker all the way to the
CEO many CEOs are still employees of a
company other professionals like doctors
or nurses are also included in this
category earned income is when you
exchange time for money which is what is
called active income this can also
include freelancers earned income is
typically the starting point for many
self-made millionaires this is where the
average person starts with and it's a
good way to get started especially if
your job allows you to provide for
yourself and your family but the
dangerous part is staying in this
category because this type of income
leverages your time which you have a
limited amount of you only have 24 hours
in a day like everyone else
so there is always a ceiling on how much
money can be made in this category this
is also one of the highest taxed forms
of income taxes in this category can go
all the way up to 40% of your income
meaning some people in this category pay
almost half of their earnings in taxes
depending on their income this is great
as a starting point but we must know
what other types of income are out there
the second stream of income is profit
income this is income produced by
selling products or services for more
than it costs to make or buy them this
is when we move from employee to
entrepreneur
in the past starting a business required
a significant investment to buy or make
the products but it has become much
easier in recent years with the help of
the internet whether you sell a physical
product or a digital product if you sell
a product for a higher price than it
takes for you to make or buy them you
are making profit income now this can be
both active income or passive income
depending on your business model if you
make things yourself and sell them then
it's more of an active income and a
little more difficult to scale but if he
create that the sign of the product and
you have a manufacturer created for you
or you make a digital product it has the
potential to become a passive form of
income there are two types of profit
income individual or small-scale in
business or highly scalable the
individual or small skill as when you
either create the product yourself or
flip products manually like on eBay or
Facebook marketplace and that is a great
way to add an additional source to your
income the scalable profit income comes
from establishing a business in having a
manufacturer for example produce your
products instead of doing it yourself
this way you free your time to focus on
other aspects of your company like sales
or marketing another recent example of
highly scalable business is by using
digital products since they do not
require your storage shipping or even
ongoing manufacturing digital products
are extremely scalable now these two
types of profit income are taxed
differently if you are an individual
flipping or creating your own physical
products in a small scale chances are
you will be taxed the same as earned
income but if you build a business you
might be able to take advantage of many
tax breaks by forming a company or a
corporation the third income category is
interest income you make interest income
by collecting interest on money lended
now I don't really mean lending money to
your friends this is typically not a
good idea but there are a few ways to
create this form of income from lending
money to the bank in a form of a bank CD
lending money to companies in form of a
bond or lending money to the government
and form of Treasury bills these are
typically safer ways to invest your
money but are not the most lucrative
many of these have between a one to four
percent return rates per year now there
might be a
few other ways to do it with a little
more creativity and higher returns but a
lot more risk this is a passive form of
income because in most cases your active
involvement isn't needed number for
dividend income dividend income is when
you invest in stocks that pay part of
their profits to their shareholders when
you buy a stock in a company you become
a shareholder whenever the company that
you invested in reports profits they
will send a check to their shareholders
typically every quarter as a shareholder
you are part owner of the company so in
companies that distribute dividends you
get a portion of the company's profits
now depending on what type of dividend
you have you can pay a lower tax rate
with qualified dividends if you make a
less than thirty eight thousand six
hundred dollars in ordinary income you
pay zero percent taxes on your dividend
income and it tops off at twenty percent
if you make over four hundred and twenty
five thousand dollars which is much
lower than earned income which can go up
to a 40 percent tax rate number five
rental income rental income typically
comes from buying real estate and
renting it out to other people now it
does not necessarily have to be home
rentals this can also include commercial
properties which is real estates that
can be rented to businesses or
industrial real estate which is rented
to manufacturers now rental income does
not have to come from real estate
specifically there are other ways to
create rental income at a smaller scale
for example many people rent equipment
for various industries or their cars or
instruments etc rental income is any
income produced by lending a property to
somebody else in exchange for money
number six residual and royalty income
this type of income is when you continue
to get paid after your work is done
whether you work in a movie that
continues to be watched wrote a book
that continues to sell or more recently
if you built a youtube channel that
continues to be viewed royalty income is
a form of residual income royalty income
is money you make by letting other
people use your ideas or properties to
make a money such as music or books
music artists for example allow
streaming services and recording labels
to produce and sell their property to
the public
therefore making royalties every time a
song is played or sold or when someone
buys a record is a similar thing when a
publishing company prints and
distributes a book as long as people
keep buying the book the author
continues making money now there can be
multiple royalties collected from the
same property a great example of this is
the author JK Rowling she did not only
make royalties from her book sales but
also from the adaptation of her books in
movies and merchandise based on her
characters even though it's been 20
years since the first Harry Potter book
came out
JK Rowling the author still collects
royalties as long as people are buying
merchandise renting or streaming the
movies or buying the books she gets
royalty payments because those products
are based on her original property
number seven capital gains capital gains
income is when an acid that appreciated
in value is sold the most common ones
are real estate and stocks but there are
many other assets for example if you
bought a real estate property for
180,000 and you sold it for 250,000 you
made $70,000 in capital gains income
same goes if you bought 100 shares of a
company at $20 a share and you sold them
at 120 you made ten thousand dollars in
capital gains now this is different than
profit income because you are not buying
or making a product and selling it for a
profit here you have assets that
appreciated in market value you don't
have much control over the value
increase but the great thing about
capital gains is that taxes paid on this
type of income are much lower than most
other forms of income capital gains tax
reigns between fifteen to twenty percent
depending on the amount earned and they
can go down to zero percent such as in
real estate in many cases if you use
your capital gains you got from a real
estate property and you reinvest them
back into the market you might be able
to pay no taxes at all you are able to
increase your net worth
tax-free when building our income most
of us know only one or two ways of
creating income but knowing the
different types of income and how they
are made gives us a better opportunity
of adding different sources of income
into our life question which source of
income sounds the best to you and which
one will you add to your
come next make sure to leave your
answers in the comments below I always
like to see what you have to say as
always thank you for watching and I will
see you in the next video
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