by Erwin Baluyot
In the quest for financial freedom and success, diversifying income sources has become a key strategy. While relying solely on a single job may provide stability, it often falls short in creating wealth and achieving millionaire status.
That's where the concept of having multiple streams of income comes into play. As the saying goes, the average millionaire has 7 streams of income.
In this article, we will delve into these income streams and explore how they can pave the way for you to become a millionaire. We'll also provide examples of how these income streams can be implemented in a Philippine setting.
1. Earned Income:
Earned income is the primary income derived from your job or employment. It's the familiar monthly paycheck that most people rely on. While earned income is a foundation, it often has limits in terms of earning potential. In the Philippines, individuals can secure earned income through various industries such as technology, healthcare, manufacturing, and services.
Example: John works as a software engineer for a multinational company in BGC, earning a stable monthly income.
2. Interest Income:
Interest income is generated from savings accounts or short-term bank deposit products with fixed interest rates. While interest income provides some level of security, the rates offered by banks are typically lower than the inflation rate, which means your money may lose value over time.
Example: Maria maintains a high-yield savings account that generates interest income from her bank deposits. However, the low interest rates make it challenging to keep up with rising prices.
3. Profit Income:
Profit income stems from various business ventures, gigs, or side hustles. It involves leveraging your talents, skills, and network to create additional income streams. This income source has the potential for significant growth and can be achieved through entrepreneurship, freelancing, or part-time businesses.
Example: Miguel runs a successful e-commerce business, selling locally sourced products online. He generates profit income by leveraging his marketing skills and expanding his customer base.
4. Dividend Income:
Dividend income is earned from investments in dividend-yielding assets such as mutual funds, dividend-paying stocks, business ownership, or Real Estate Investment Trusts (REITs). Dividends represent a share of the profits distributed by companies to their shareholders, providing a consistent source of income.
Example: Sofia invests in dividend-paying stocks listed on the Philippine Stock Exchange. She receives regular dividend income from her portfolio, contributing to her overall wealth accumulation.
5. Rental Income:
Rental income is derived from owning properties and leasing or renting them out to tenants. Real estate has always been a popular investment avenue in the Philippines, and rental properties can provide a steady stream of passive income.
Example: Carlos owns multiple residential properties in a bustling city. By renting out these properties, he generates rental income that exceeds his mortgage payments and contributes to his overall financial growth.
6. Royalty Income:
Royalty income is earned by licensing copyrighted works, such as music, photography, or written content, for commercial use. While royalties may not be significant initially, mass production or usage of your content can lead to a steady and passive stream of income.
Example: Andrea is a talented songwriter who earns royalty income from having her songs used in commercials and films. As her songs gain popularity, she enjoys a consistent flow of royalties.
7. Capital Gains:
Capital gains income is realized through the sale of assets such as stocks and mutual fund shares. By investing in appreciating assets and selling them at a higher price, individuals can earn capital gains. Although capital gains are subject to taxes, some investment schemes, like Mutual Funds, offer exemptions to encourage participation.
Example: Ricardo invests in a diversified portfolio of mutual funds. Over time, the value of his investments grows, and he sells them to realize capital gains. These gains contribute to Ricardo's overall wealth accumulation and bring him closer to his goal of becoming a millionaire.
Mutual Funds: A Path to Multiple Streams of Income in the Philippines
Mutual Funds offer an accessible and convenient avenue to achieve three of the income streams mentioned above: interest income, dividend income, and capital gains. They are ideal investment options for individuals who lack the time or knowledge to engage in direct stock trading.
In the Philippines, Mutual Funds are managed by professional fund managers who make investment decisions on behalf of the investors. These funds pool money from multiple investors and invest in a diversified portfolio of stocks, bonds, and other financial instruments.
By investing in Mutual Funds, individuals can earn interest income through the fixed-income securities held in the fund's portfolio. These securities generate interest payments, which are then distributed to the investors based on their proportional holdings in the fund. This provides a relatively stable income stream that can help counter the effects of inflation.
Furthermore, Mutual Funds also invest in dividend-paying stocks and other income-generating assets. As a result, investors can receive regular dividend income from their Mutual Fund investments. Dividends are typically paid out by companies in which the fund holds shares, providing an additional source of income.
Additionally, Mutual Funds offer the potential for capital gains. When the fund's investments increase in value, investors can sell their units at a higher price, realizing a profit. Capital gains earned from Mutual Fund investments are subject to capital gains tax, but some Mutual Funds are exempted from this tax, as per the aforementioned R.A. 8424. This makes Mutual Funds a tax-efficient option for generating capital gains income.
It is worth noting that investing in Mutual Funds still carries risks, as the value of investments can fluctuate based on market conditions. However, by diversifying across different assets and sectors, Mutual Funds aim to mitigate risk and provide more stable returns compared to individual stock investments.
To maximize the potential of Mutual Fund investments, it is essential to select funds that align with your investment objectives and risk appetite. Consider factors such as the fund's investment strategy, historical performance, expense ratio, and the reputation of the fund manager. Consulting with a financial advisor or doing thorough research can help you make informed investment decisions.
Conclusion:
Becoming a millionaire is not an overnight achievement, but by embracing the concept of multiple streams of income and diligently working towards diversifying your earnings, you can pave the way for long-term financial success. Remember, the journey to becoming a millionaire starts with taking the first step towards building and expanding your income streams.
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