1. Earned Income
Earned Income is the money that you earn by doing something. You are trading your time for money. JOB means Just Over Broke. Can’t think beyond earning money through a job? That’s because a job will provide you with relative security. Unfortunately, this comfort zone will become your biggest enemy and will keep you away from leading an extraordinary life.
Our ‘Earned Income’ is where our time utilization is least efficient, and since there is a limit to the number of hours we can put in a day, there is also a limit to the amount of money we can earn from this stream of income. All other streams of income are not directly dependent on time, and hence can leverage time well to generate huge wealth.
2. Profit Income Earning by selling something for more than it costs you to make. But this will also take away a lot of your time, at least in the initial stages.
For most people, ‘Earned Income’ and ‘Profit Income’ are the only viable means to earn serious money but they often tend to forget that there are 5 other ‘equally’ viable and serious streams of wealth generation.
3. Interest Income ‘Interest Income’ money is the money you get as a result of lending your money to someone else to use. This is a great source of passive income where your active involvement is not needed once the investment is done. When combined with the power of compounding, and the fact that this is a true passive income with least amount of risk, this can beat any of the first 2 sources of income generation hands down.
4. Dividend Income This is the money that you get as a return on shares of a company you own. It’s equally passive and makes you a shareholder of a company.
If you invest smartly on ex-dividend dates of good blue chip companies, you can far exceed the returns from Dividend Income than what you get from the Interest Income, since you are also a party to the Capital Gains that the share price goes through. This is one of the key instruments for generating adequate Cash Flow and still get very good income.
5. Rental Income This is the money that you get as a result of renting out an asset that you have.
You can easily start earning ‘Interest Income’ or ‘Dividend Income’ with a ‘small’ investment but not so with purchasing an asset.
It is also difficult to liquefy this asset quickly in times of need.
6. Capital Gains This is the money that you get as a result of increase in value of an asset that you own.
7. Royalty Income This is the money you get as a result of letting someone use your products, ideas, or processes. They make all the revenues, they do all the hard work and you get a small percentage of whatever they earn. The biggest challenge here is to create something unique and then make it repeatable. Once created, there is virtually no limit to the amount of money you can earn.
Warren Buffet is a billionaire, but he didn’t use all 7 of these principles, he mainly used Capital Gains (of companies in the stock market) and Dividend Income.
Another example is Bill Gates, who generated income through ‘Profit Income’ and ‘Royalty Income’ streams from ‘Windows’.
The biggest risk to your financial life is being dependent on only one income stream where you are actively involved.
So choose your streams…
But also, keep in mind, there are six core human needs:
- certainty
- variety
- significance
- love
- growth
- contribution
We all have the same six needs, but how we value those needs and in what order, determines the direction of our life.
Need: Certainty/Comfort
It’s our need to feel in control and to know what’s coming next so we can feel secure. The need for basic comfort, avoiding pain and stress, and creating pleasure. It affects how much risk we’re willing to take in life—in our jobs, in our investments, and in our relationships.
The higher the need for certainty, the less risk you’ll be willing to take or emotionally bear.
Need: Uncertainty/Variety
Do you like surprises? Yes! I call bullshit. You like the surprises you want. The ones you don’t want, you call problems! But these give you muscle, character, something to push back against.
Need: Significance
We all need to feel important, special, unique, or needed. Through earning billions, being an academic, building a giant twitter following, covering ourselves in tattoos and piercings or going on The Bachelor. You can get significance by having more, or bigger, problems than anybody else. Anything that makes you stand out from the crowd.
Need: Love & Connection
Love is the oxygen of life; it’s what we all want and need most. When we love completely we feel alive.
We all find ways to meet these needs – whether by working harder, coming up with a big problem, or creating stories.
These last two needs are rarer and not everyone meets these.
When these needs are met, we feel truly fulfilled.
Need: Growth
If you’re not growing, you’re dying. It doesn’t matter how much money you have in the bank, how many friends you have, how many people love you – you’re not going to experience real fulfillment.
Need: Contribution
Think about it, what’s the first thing you do when you get good or exciting news? You call somebody you love and share it. Sharing enhances everything you experience.
Life is really about creating meaning.
You’re always one decision away from a different life, which decision will you make today?
See what our client say: Testimonials
Watch our YouTube Channel