How Many Streams of Income Should You Have?

How Many Streams of Income Should You Have?

Should Every Physician Have 7 Streams of Income?


Having 7 streams of income is the secret. You know what deserves to be left in the last decade? The pre-conceived notion that slaving over a 9-5 job is the best way to get rich. We were raised to believe that the singular path to success is to “study hard, graduate from school, and get hired for a high-paying job”. Our generation has become so obsessed with working overtime and being oh so busy, as if not being so is considered a crime. It’s totally fine to be busy, but “how often are you busy” and “with what matters are you busy with” are the questions that deserve all the proper answers.

It’s about time we all get out of our comfort zones. It’s crucial to realize how time is such a valuable yet limited resource. You see, taking on more shifts or continuing to work on your days off should not be the answer to earning more money because it’s simply not sustainable. Trading your time for income can only get you so far. In order to build long-term wealth, the best thing to do is to trade less time for bigger income.

If you have been with us over the course of our other blog posts, having multiple income streams to generate wealth should be common knowledge by now. In this blog, we’re taking it a step further. Researchers have gone so far as to specifically identify 7 streams of income which will fast-track your journey to becoming a millionaire. After all, the goal is to achieve financial freedom as young as you possibly can, because what use are your millions if you are too old to enjoy them anyway?


Big business has been diversifying its income streams for centuries. They expand their business operations into different sectors to generate new streams of income. Almost any company can diversify. A flower shop can develop a separate wedding flower business, for example, or offer mail orders. The most potent diversification is into a completely new business sector. But that takes a lot of effort and expense. 

An excellent study of a company that has grown and diversified is the Virgin Group. Initially started by Sir Richard Branson as a record label, Virgin has since expanded into aviation, holidays, mobile telephony, and much more.

An example of a good way for an electrician to find other streams of income is to work with property management companies. His core business may currently be private homeowners, but management companies often need additional tradespeople. Another route could be to start offering courses to people on basic electrics and how to stay safe with electricity.

Aside from diversification, there are other ways to generate income known as the seven streams of income;

  • Earned Income
  • Profit Income
  • Interest Income
  • Dividend Income
  • Rental Income
  • Capital Gains Income
  • Royalty Income

Many of these are not available to everyone. You need to have money already to benefit from some of these income streams.


You are subject to financial gravity

Think of your net worth as an airplane. You are trying to get it into the sky and soar effortlessly.

On Earth, we are all subject to the same gravitational force. The larger you are, the more that force exerts on your body. If you weighed nothing, you would fly away.

Financially, our net worth airplanes are all subject to the same financial pull. Where you choose to live, how you choose to live, the products you buy, etc — they will determine how large and heavy your plane will be to hold all that stuff. The greater the need (monthly expenses), the more thrust (income) you’ll need to take off.

Your net worth airplane takes off when your thrust (income) exceeds your gravity (expenses).

Additionally, there will be a transition point when it’s less like a plane and more like a rocket. It’s when passive thrust plays a greater role than active thrust. Your investments, hopefully, grow to the point where they exert the greatest impact on your net worth and your income and savings (income minus expenses) plays a smaller role.

That transition point can be challenging to navigate but it is also very freeing.

Profit Income

By selling a service or product for more than they cost, you use the basis of profit income. You could open a retail store and sell products, offer professional services and charge for your time, or combine the two.

It is one of the hardest steps to move from earned income to profit income, but it is the dream of many employees. Becoming self-employed or an entrepreneur can be a difficult road, and there are risks. 

6. Capital Gains

Capital gains are the money you get due to the increase in value of an asset you’re selling. It’s the positive difference between the sale price of the asset and the original purchase price. This includes stocks, real estate property, bonds, jewelry, coin collections, or cars.

Capital gains differs from investment income though. Capital gains are purely the profits from selling an investment for more than its worth. Investment income is a term that includes capital gains, dividends, interest, and other profits made.

To earn money through capital gains, most common ways are buying properties at a low price and selling them for profit or buying growth stock funds and selling them once they’ve increased in value.

Capital gains does have a tax implication so make sure to check with your tax professional before selling off large assets.


After employment, I think that most individuals gain income diversification through investing.  It is important to look at why we invest: because at some point we plan on using this money for something.  For most, it is saving for retirement, and the investing is done through vehicles, such as a 401(k) or IRA.  But investing is not just about stashing money away for a rainy day – that is what an emergency fund is for.  Investing is about having enough capital to generate income.

Investing generates income through dividends, interest, and return of capital.  You really want to maximize the first two, and stay away from the return of capital as much as possible.

Think about it.  If you are saving for retirement, you are trying to save enough in investing to generate enough income to replace your primary salary.  Let’s take my friend’s example above: $50,000 a year.  To generate $50,000, you would need to have almost $1,700,000 saved, and be able to generate a 3% cash flow on that money (which is reasonable if invested in dividend paying stocks).

You could also draw down on your principal if needed, but this is a return of your invested capital, and if you continue this for a long period of time, you run the risk of exhausting your resources.

If you’re ready to start investing, check out our list of the best places to invest!

Not all passive streams are equal

There is only one stream where you bear all of the risks but reap all of the rewards – the stock market. (we can quibble over the use of absolutes but I think you get the point)

In every other case, you bear more of the risk than the rewards you potentially reap because you need to pay someone who is actively working on it. If you invest in a business, you take on a lot of risks but you don’t get all of the rewards. Before distributions to shareholders, operators will be paid.

Not only that but in almost all other cases there is the illusion of influence, which is itself a psychological and emotional cost. If you invest in a business that your friend or family member is running, you can see how things can get messy. You have thoughts on how things should be done, they have competing thoughts if things aren’t going well… we know how this story goes.

That being said, the upside to many of the other options can far exceed the stock market and that balloon payment is very appealing. In five years, I built a website from $0 to seven figures. You cannot do that with the stock market.

The cash flow, leverage, and tax benefits in other passive streams, like real estate, is also very appealing. Donald Trump took a $1 billion tax deduction a few years ago! You cannot do that with the stock market either.

Finally, there are assets that have no passive income streams but that you can create a stream using the Buy Borrow Die estate planning strategy.

2. Dividend Income

Dividend income is a form of income that’s paid from the shares of a company you own. Another common name for these are dividend stocks.

This is a passive form of income since you don’t have to actively buy or sell stocks. You’re considered a shareholder in the company you own the dividend stock in.

At the end of the year, if you owned 100 shares of dividend stock and each earned $2 in dividend income, that’s $200. As you scale this up with more and more shares, the earnings are significant.

The key is to pick the right dividend stock which is easier said than done. You also risk the company going out of business and your shares becoming worthless. Most dividend stocks have an extremely low yield of 2-3% so if you’re young, investing in well-diversified index funds may be a better option since the growth potential is higher.

As with any investment, make sure you have a complete understanding before investing and consult a licensed financial professional.

How much time self-made millionaires devote to new income streams

If you have a consuming 9-to-5 job and/or other sorts of commitments at home and at work, carving out the time to devote to starting another income stream might seem daunting. Based on what I've learned from my research, you can start small:Set aside no more than five hours each week and begin slowly building something new. 

If you're not sure where to start, think about the subjects, skills, and activities you are most passionate about, and explore the ways that you could monetize one of those

In my research, other than consistent saving and investing, passion was by far one of the most important shared attributes of the self-made millionaires in my study. 

VIDEO 2:45 02:45 Barbara Corcoran: How your hobby can become a side hustleEarning

Video by Stephen Parkhurst

What Are The 7 Streams of Income?

1. Earned Income

Otherwise known as your salary or typical monthly income from your primary job. Earned income could be based on an hourly rate alongside bonuses, commissions and more. This remains the same whether you are employed or self-employed. This earned income is typically subject to taxes, although likely at different thresholds depending on the amount. 

2. Business Income

Alongside earned income, you may receive extra income from businesses you have set up. These are otherwise known as your side hustles, and may be made up from just one source or could be multiple.

It is typically found among your balance sheets, taking the difference between profit and loss. Once again, this is subject to taxes. 

3. Interest Income

You’ll receive interest on your bank account savings, although since 2020 this interest rate has likely fallen significantly. Ideally, it would match the level of inflation but these days, interest rates are very low.

Find out your interest rate by checking your bank statements. If you have funded any loans, you are also likely to be eligible for interest as the principal amount is repaid. 

Some banks with interest rates include CIT Bank, Aspiration, and Consumers Credit Union.

4. Dividend Income

The stocks and shares you invest in may yield dividends, or you be paid via dividend if it fits with your company structure. Dividends are more commonly known as a share of the profits.

For example, as the Director of an LLC, you are eligible to split your profits into twelve monthly dividend payments. Alternatively, some investments pay dividends quarterly or annually. 

5. Rental Income

Once you own property, you can begin collecting rental income as an added monthly income stream. Depending on the structure of your property (whether you’ve got it under a separate company, for example), you may be subject to extra taxes, so the yield of your property income should account for this.

As a landlord, you’ll likely have a Mortgage to pay as you acquire new properties. This should also factor into your rental income pot. 

6. Capital Gains

Capital Gains income is acquired through the sale of assets such as art, stocks, business, and loans. Income earned via this route is subject to capital gains tax but will often be acquired as a lump sum rather than consistently over time. Learn more about capital gains tax on the IRS website.

7. Royalties or Licensing Income

Are you a creative individual who produces music or photography content? Licensing this for specified public usage means you can create royalties as an extra stream of income.

Royalties are not likely to be significant on their own, but mass production/usage of your content is likely to bring in a steady stream. 

How many income streams are there?

There are two different types of income streams: active income and passive income.

While these can be broken down much further, including into 8 streams of income or even 9 streams of income, all of these can, overall, be categorized as either active or passive.

The goal then, overall, is to generate as much passive income as possible. After all, active income requires you to, well, earn it actively. This means your earnings are limited as to how many hours there are in a day.

But passive income can be earned even when you’re not actively working on it. This is the entire premise behind The 4-Hour Workweek: you should only have to work four hours to earn enough money to sustain yourself.

Of course, passive income takes some work to get it to the point where it’s producing enough money to do this. Just think of your own investments – you start with investing, say, $1,000 which in itself isn’t going to earn you that much money.

But as you continue to add to this (combined with the magic of compound interest), you’ll eventually find yourself earning significant money from these investments – with barely any ongoing work on your part.

How much passive income is enough?

The amount of passive income that’s enough for you will depend on what you intend to do with this money and how much active income you’re earning at the same time.

That is, if you intend to live solely off your passive income sources, you’ll need enough passive income to pay for all your expenses. 

But if you want to, say, invest a certain amount each month and you intend for your passive income to cover this while you continue to pay your expenses with the active income you earn from your job, you’ll probably need less passive income, depending on how much you’re looking to invest.

As you can see, the answer is going to vary depending on your personal circumstances, so do the math and set up your plan from there.


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