by elmads

Introduction

Most people, including myself, would probably work day in and day out for most of our lives. There are some who will be genuinely happy in what they’ll be doing, others are in the middle (the okay kind of work for them), while several individuals will be doing it for the sake of money.

It is an undeniable fact that working for money will always be the top 3 reasons why we do this endeavour, to sustain our life’s needs and wants.

And most of us knows one and the easiest way to attain income, and that is through employment. There’s nothing wrong about it despite what others say, nevertheless we also have to be diversified and strategic with our sources of income. We have to be realistic to the fact that we will not be able to work forever, to be able to keep on exchanging our time and effort for money.

This is where the popular 7 sources of income comes into the picture. Methods to maximize our resources in one or more ways possible. It is by leveraging the upside of other sources through our accumulated base core income.

A means to diversify how we get money. If one fails at least the other sources will be able to support us to sustain our necessities of life even in the short to medium period of time.

Earned Income

This is the money we get from our work, the 9-5 hours or 12 hours shifts. Everyone start as an employee, we get to experience how the labour market works, what drives a company, and how a job should be done depending in the industry we work in. There are a lot of things that we can learn in a work place environment that we cannot experience or learn from schools, such as how to treat customers, co-workers, the significant difference of theories in schools and how it is actually applied in the practical world. This is why employment is a very essential part in a person’s life, as it grants further growth and learning to once self. And, it also the most popular way to achieve our initial salary.

Employment salaries vary every industry, and also depends on the educational background or degree that we have attained. Some industries will have higher than the average national pay, while others, disappointing. This is where having an educational degree will be important to land an average to high paying salary.

In addition, the best way for employees to increase their current salary is to achieve a higher level of education. This is venturing into specializations that is also required to get up into the ladder of employment, but this will still vary on the job position requirements and availability. The higher the education that we are able to obtain, the higher the chance that we will be able to land a top job position that gives a decent to a massive amount of pay. As we approach the middle to top tier of the corporate ladder, we have to be ready to face tighter competition and other things that comes with it.

The top professional earners worldwide are the CEOs of companies, Surgeons, Neurosurgeons, Data Scientists, IT Managers and Tax Attorneys to name a few.

These are indeed deep specialized jobs, and some of them will require PhDs or Doctorates. Unfortunately, not everyone would want to have further studies due to their own life circumstances or they do not have the drive to do so, but still do want to have a larger income than what their job has to offer.

Will it even be possible to still have other income than earned income in their arsenal? despite being busy already at work and having responsibilities at home? My answer is absolutely! Just like what Rachael Bermingham said;

“It’s not about having enough time, it’s about making enough time.”

-Rachael Bermingham

Employment is not the only way to generate more income.

We also need to be self aware. What are the things that we love, our strengths, the things that make us tick and the buttons that makes the person who we are. That’s where we could base the steps to find our other sources. The one that will match our own personality, time and goals.

Business Income

This is income earned from products and/or services sold. Not everyone is meant to start their own business, that’s just the reality of it. Starting our own business requires our own self-awareness, our passion in what we do, perseverance and consistency, to keep on going no matter what, and most of all our main purpose for this endeavour.

Business is one of the hardest sources of income to start, it requires for us to build it from top to bottom, to do almost all the work, capital allocation, management, hiring and making critical decisions for the business’ sake and having full responsibility of everything. It is an arduous endeavour both physically and mentally. That’s why most entrepreneurs say that loving what you do is one of the most important aspects of having our own business. There is a reason why studies show that 9 out of 10 start-up businesses fail over a span of a decade. Handling multiple setbacks and failures, and the ability to pivot are significant skills that needs to be practiced and acquired in this space.

Nevertheless, as long as we can handle failures, continue to learn, finding opportunities around us, and consistently taking actions, then venturing into businesses will not be a frightening path to take. Its fruits of labour, is one of the best. A fruitful reward for an arduous endeavour.

Sales skill is one of the most important, if not the most, to attain business income.

Royalty Income

The income earned from allowing someone to use the ideas, products and processes that we have licensed. Royalties are Intellectual Properties (IP), in which, someone licensed a product or service under their name. Intellectual Properties itself is broad, because there are further sub categories for it.

The following are the sub-categories for an IP;

• Copyrights – It is an original idea that has been formed through significant mental activity, examples are computer software, art, poetry, graphic designs, musical lyrics and compositions, novels, film, original architectural designs, website content, and other more.

Copyright is the legal rights to make copies of a specific intellectual property. This means that the original creator of the product and anyone they give authorization to are the only ones with the right exclusive to reproduce the work.

When a person or a company gets a copyright license of your work, that’s when you get royalty income.

• Trademark – This gives the distinction of a certain entity, which differentiates them from others.

It is an intellectual property protection law of words, phrases, logo, slogan, brand names. Same as copyrights, a person or a company who wants to use that trademark need to have the authorization to exclusively use a trademark legally.

Trademarks have 3 distinct sub categories;

1. Logo Trademark – Example; Nike “Swoosh”
2. Word Trademark – Example; “NIKE”
3. Slogan Trademark – Example; “Just do it.”

• Patent – These are legal exclusive rights given by the government to an inventor, but only in a period of time. This means that an inventor of a product or item can have the sole ownership of his/her invention within a certain amount of time. This can span to 1-3 decades, in return the government will require the inventor to disclose the whole information on how he/she made the invention.

Patent gives monopoly to the inventor who patented his/her product, whoever will try to copy it will be subjugated under the law.

The patent law was made to spur further inventions and discoveries in order to help the community and the country as a whole. Innovations make people’s lives easier, better and most of all, it increase the growth and expansion of a country and its economy.

This first patent law is said to have started in Venice Italy during the Renaissance period, in which different inventors from various parts of the world went to Italy to take part from the learnings, discoveries and innovations of that time.

The systematic patent law’s rationale was all for Italy’s economic growth, here is a citation from the patent law they made;

“[T]here are in this city, and also there come temporarily by reason of its greatness and goodness, men from different places and most clever minds, capable of devising and inventing all manner of ingenious contrivances. And should it be provided, that the works and contrivances invented by them, others having seen them could not make them and take their honour, men of such kind would exert their minds, invent and make things which would be of no small utility and benefit to our State. Therefore, decision will be passed that, by authority of this Council, each person who will make in this city any new ingenious contrivance, not made heretofore in our dominion, as soon as it is reduced to perfection, so that it can be used and exercised, shall give notice of the same to the office of our Provisioners of Common. It being forbidden to any other in any territory and place of ours to make any other contrivance in the form and resemblance thereof, without the consent and license of the author up to ten years. And, however, should anybody make it, the aforesaid author and inventor will have the liberty to cite him before any office of this city, by which office the aforesaid who shall infringe be forced to pay him the sum of one hundred ducates and the contrivance immediately destroyed. Being then in liberty of our Government at his will to take and use in his need any of the said contrivances and instruments, with this condition, however, that no others than the authors shall exercise them.” 

Reference – https://digitalcommons.osgoode.yorku.ca/cgi/viewcontent.cgi?referer=https://en.wikipedia.org/&httpsredir=1&article=1888&context=scholarly_works Slide 12, under 6. The Venetian patent statute of 1474

Thanks to the renaissance period, the patent law was made. By the way, that period of innovation was mostly financed by the dominating family during that time in Italy, the Medici. I have quickly tackled a quick history about them in my blog titled “Banking & their History”

Rental Income

The income earned from letting someone live and use our own property.

This is an income stream that usually goes hand in hand with debt. Yes you read it right, we will need to go into debt to be able to purchase a property, not unless we’ll be able to pay in one off. The reality is, not everyone will be able to afford a property in cash that’s why going into debt is paramount.

Debt is not good or bad, it will depend on the person who handles the debt. I have discussed this in detail in my blog titled “Debt is not Good, nor Evil”.

Using debt in this space is a means to leverage the banks money. It is for us to be able to use it in our own advantage to acquire rental income.

I just want to point this out, a purchased home that we live in will never ever have a rental income, not unless we rent it out. The gain such income when we purchase a property, then rent it out to other people who will be called our tenants. The money we received from our tenants is called the rental income.

It sounds easy isn’t it? well not really. We need to have the Knowledge and skills about this.

1. Type of Property – Is it commercial property, Condominium, Apartment, etc?
2. The city and community – This will be a determinant for the property supply and demand. Meaning, is the area where the property located a strategic place? are there schools, malls, cinemas, hospitals, tourist place or a work place? location, Location, LOCATION.
3. Safety – is the area in a fault line, is it known to get flooded easily and etc.
4. Is it an emerging place/soon to boom city? – This gives an opportunity to buy that land and property at the current lower price point compared to its probable projected future prices.
5. The maintenance costs of the property – a no brainer, properties will always incur costs to maintain, preserve and increase its value.
6. Are you ready to handle tenants? – this is the most stressful part of being a landlord. If we’re lucky, maybe we’ll be able to get a responsible person, couple or family.
7. If we want less stress, get an agent to handle numbers 1-6 – Real estate brokers will do the work in our behalf, it is a partnership between us and them. The downside is, like any other professionals, we will need to pay fees for their service and/or take a percentage of our property’s rental income. But hey, at least it will help lessen our stress compared to if we’re the ones handling everything.
8. Basic financial skills – Why? it’s because we have debts in our name. Debt can make the poor rich and the rich poor. Handling it properly will make us wealthy, but mishandling it can lead us into substantial losses. Even to the extent of losing the property that we’ve exerted a lot of our time and effort.

To sum it up

These 4 streams of income, namely earned, business, royalty and rental have something in common. All of them will require our own effort and time, but the degree of it can change overtime. This is because Business, Royalty and Rental Incomes can have less to no effort and time needed for it in the long run, this means that they can be turned into passive income. See I used the word “can”, because this still depends on the person how he/she will make it into one.

Probably you are wondering if earned income can be passive income as well? unfortunately, it will never be. Earned income will always require our time and effort no matter what, even top employment positions are not excluded from this. Sure, they might not need physical effort in doing their job, but they’ll still require to expense their mental energy. Examples are the top consultants, advisors and analysts in different fields of expertise.

Streams of income are no longer a luxury, it is now a necessity. Earned income itself will not be enough for most people. That’s why learning, executing, enjoying the journey, and most especially being self aware are very important for us to achieve the life that we personally want and need, not just for ourselves, but also for our family.

“Wealth comes from multiple incomes. Always think of growth and new businesses to create new income streams.”

– Ehab Atalla

Part 2 of the 7 Streams of Income —->

Knowledge is my Sword and Patience is my Shield,

elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.