From the desk of Harsh Strongman
Subj: Types of Income Streams
No matter how poor a person is, nobody likes the idea of selling time for money. Still, most people’s only source of income is them selling their time in exchange for an hourly or fixed salary.
This prevalence of relying only on a salary for your entire income has two reasons behind it:
1. The feeling of comfort you have when you have a nice paycheck coming in every month.
It takes away your survival instinct to strive for more.
“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” – Nassim Nicholas Taleb
2. People are not aware of the other streams of income they can create. They think it’s too hard, or that it requires too much capital.
(A small conversation with the average person will tell you that he feels that “there are no real options” available to him besides his job.)
In this article, we’ll discuss the broad income streams you can create, from both active and passive sources.
Active Income Streams
These are income streams that require an active effort on your part to generate revenue.
1. Salary from a Job
A job is a time (non-performance) based income with an employer involved.
Do not work a job for your entire life.
A job is the worst and the stupidest source of income to have – it burns your most precious resource: time.
The only time you should work a job is when you need the money to pay the bills on time, i.e., emergencies. And if you do, make sure it’s only a temporary thing.
I repeat: Do not work a job for your entire life.
No one ever got rich trading their time for money.
2. Performance-Based Pay (Career, Self-Employment, Freelancing)
Unlike a job where you are primarily paid for your time, here, your compensation depends on how well you perform.
You need to deliver results.
This tier is where you’ll find professionals such as doctors, lawyers, consultants, surgeons, etc.
People people who draw their primary income from this category end up becoming well off (not rich).
(No matter how high the rate is, you can’t get rich trading time for money. There just isn’t enough time!)
A part of your compensation for those at this stage could come from commissions or stock options, especially if you’re in sales or management, so there’s a level between performance-based pay and business – you’re still working for someone else, but you do end up with some ownership/scale.
A business is something that makes money while you sleep.
This is how most rich people became rich. They created a business and scaled it.
Businesses give you returns in two forms:
A. Cash flows: These are the free cash profits you make from running your business.
B. Equity Value: This is the value of the underlying equity of the business. This is what you expect to receive in the event you sell the business.
Even after you adjust for risk, a business that you own is the best way for you to get rich.
Passive Income Streams
Passive streams are those that make you money for little effort on your part.
This doesn’t require too much explanation. Basically, you lend money/buy financial assets that pay you a fixed return for holding them.
Sources of interest include government and corporate bonds, debentures, fixed deposits, etc.
2. Dividends and Other Investment Income
Dividends are payments you receive from an equity portfolio. (You also get to keep the capital appreciation/bear the risk of falling stock prices.)
Likewise, you can have income from other investments such as REITs, etc.
3. Rental Income
Rent is what you collect from your tenants for using your real estate.
4. Automated Businesses
These are businesses that are by and large automated. They require some maintenance, so they may not be entirely passive, but the connection between time invested and revenue is very small after a certain point is reached.
Most automated businesses are internet-based, mainly because the internet helps you reach out to people 24-7, and software can automate most of the work for you.
[The simplest form of an automated business is a niche website with affiliate links. You can learn to set them up for free with some research on Google (don’t buy a course on this). You only need to invest in a domain name and some cheap web hosting.]
Strive to create at least 3 to 5 income streams as quickly as possible. (Note that if you run two businesses, that counts as two income streams.)
Multiple sources of income diversify your risk that in case one of them sinks or takes a massive hit, your income won’t be wrecked.
Roadmaps for two common situations people are in:
Situation 1: You have a job, and time and capital are scarce.
Start some sort of an internet-based side business. Read my article on how to make money online to help you get going.
Use the free time you have at your job to work on your business (you know you’re not busy 8 hours a day – most office jobs only need 4 hours of real work a day).
Be discreet about it; you don’t want your employer to think you’re “unfocused”.
Try to get your side business to the point that it can pay all of your bills, while all of your salary is saved and invested (which itself will provide a third income stream – interests and dividends).
This may take some time, depending on how high your expenses are. If you’re in a third-world country, 1 – 1.5 years should be more than enough for you to scale to the point that your internet revenue covers all of your bills.
Once you’re there, you can quit your job and look into starting more businesses, or buying a house, either for living in or as an investment (another income stream!).
Situation 2: I’m a student.
In this case, set up one or more online income sources. Do it as a habit – one new project (website/YouTube channel/social media account, etc.) every quarter.
Don’t be too stressed about the revenue – even a “failed” website (makes less than $500 a month) can help you make some extra money and fund your education.
Making some money online will open your mind up to a world of possibilities – and you will realize how almost all of the “limitations” you were told exist are lies that people believe to be true.
Once you get done with your education, look for a career or start more businesses.
- Everyone needs to strive for at least 3 – 5 streams of income, out of which at least one source should be internet-based.
- If you are young, start by creating a few digital assets. It doesn’t even have to be a lot of money (even an additional $500 a month is better than nothing!).
- Location-free income will open up your mind to a variety of possibilities (or at least, it did for me).
- You will never get rich trading time for money. (Repeated for the third time to drive home the point.)
- The only way to get really rich is to create a scalable business.
- The more income streams you have, the safer you are in case one of them dies.
- If you can read English and have access to the internet, you have no excuse for being perpetually broke.
Anyway, that’s all for today.
Until next time.
P.S. if you’re interested in developing great habits, boosting your momentum, and improving your life significantly, you should check out Live Intentionally: Discipline, Mindset, Direction – A 90 Day Self-Project. I recommend it taking up the project as you build your first online revenue stream – it’ll give you the momentum and push you need till you see that first dollar (the hardest!).