Different Streams Of Income And What They Mean

Income streams are simply all the ways we can make or create money for ourselves.  

There's a widespread idea that multiple streams of income mean more stress, but it's not always the case. There are income streams that can fetch you money even without you being physically present or doing a lot of work. For some income streams like rent, all you have to do is put in the initial work, and you can earn from it for a long period.

Below are six different types of income streams and what they are.

1. Earned Income

This is money gotten from a regular job in the form of salary or wages. This can be daily, weekly, or even monthly. It is typically paid after work for a certain period has been completed and is the primary source of income for a lot of individuals and families. One feature of this is that it is stable, that is, the same (or nearly same)amount always.

Some of the important things to do as soon as you receive an earned income include:

I -Build up an emergency fund

II -Save for the long and short term.

2. Profit Income

This is income gotten from a business operation. Profits are usually not stable and can vary depending on the economic situation, size of capital, sales, etc. 

A good way to earn side income is to sell products or services and earn profit. These can be just about anything; advice, skills, food, clothes, etc. It is however important to study your environment and decide what product will do well. It doesn't matter if someone else is doing it, competition can be good, and with proper research and planning, you can carve a space for yourself too.

Not every revenue generated from the business is profit that should go to your pockets, however, as some are meant to be channeled to production costs. There are mainly three types of profits:

-Operating 

-Gross

-Net

(It is important to note that real profit is what is left after all business costs have been paid including materials, labor, taxes.)

There are two ways to earn more profit in business, and these are - 

-Raising prices

This will increase the revenue as long as there is enough demand, that is if customers and clients want your products/services bad enough to pay higher prices. 

-Lowering Costs

Lowering operational costs is a great way to increase or maximize profit in business. You need to be careful with this, you do not want to lower operational costs so much that it affects the quality of your products or services.

One area you can cut costs is elaborate branding. 

3. Interest Income

This is income gotten from investing. Your interest is the ROI ( return on investment) you get on whatever capital you put into the investment. This is a great income stream as it doesn’t require a lot of work after putting in the initial investment capital.

Great ways to earn interest income include the following:

Online savings accounts, e.g. Piggyvest, Cowrywise.

Checking accounts

Treasury Bills

Money Market

Bonds

One of the most important features of interest is "compounding."

This implies an interest on your interest. This feature can be a very useful tool in increasing income, especially as it's passive - meaning it doesn't require your time, effort, or anything. All you need to do is put in your money and let it make money for you over time. 

4. Capital gains

This is income gotten from the sale of an asset. This asset can be stocks, bonds, real estate, gold, silver, automobile, machinery.

There are two types of capital gains: short-term, and long-term.

Short-term capital gain involves buying an asset with the intention to sell after a short period. 

Long-term capital gain involves buying an asset with the intention to keep it for a while before selling.

Generally, the longer you hold on to an asset, the less tax you pay. This means that short-term capital gains are more heavily taxed than long-term.

Unlike other cash-flow incomes, capital gains are only realized when the asset is sold off completely, and this translates to higher rates. The amount you sell a house for will probably be about 20 times higher than the amount you'd rent it out for - depending on the location, and condition.

5. Rental Income

This is income gotten from renting property or materials. This stream of income can be very profitable, as you are continuously earning from the rental property or material over time. 

Property is currently a big deal, capable of accruing huge profits in only a matter of years. 

Getting into properties, however, requires a lot of capital. You need to purchase the property to rent and cover other things like insurance, and maintenance, and management costs. It is important to consider all these costs before deciding to rent a property.

You can rent other things beyond property: chairs, instruments, equipment, tools, special occasion garments, extra space, car, etc. 

It is encouraged to be familiar with the law, and taxes surrounding the renting of anything before embarking on it.

6. Dividends

This is income gotten from being a shareholder of a company. Not all companies give dividends, and it’s super important to check if the company whose shares you intend to purchase pays dividends.

Beyond the amount paid as dividend, however, it is important to go for companies with a track record of good performance, and stability. Be wary of unreasonably high dividends, sometimes, this is a sign that the company isn't reinvesting into itself, and is a sign of instability.

If you reinvest your dividends and invest even more into shares occasionally, you'll be well on your way to financial security in no time. 

Having just one stream of income makes it more difficult to build wealth. The more buckets pour into a drum, the faster it'll fill up.