There was no talk at home or lessons at school on building wealth so for me, a Nurse, and my partner, a Civil Engineer, this led to our jobs being our only source of income. Our dreams weren’t lofty we just wanted a happy life, nothing fancy. Surely, to provide for such moderate aspirations would be straight forward and relatively easy, right?
We’d always understood the fundamentals, to our mind these being…
- In order to build wealth for the long term we would need to budget and control the difference between our income and expenses.
- The greater the difference between our income and expenses, the more we be able squirrel away.
- The bigger the saving, the faster our savings would grow over time.
What we didn’t expect, maybe naively, was our earned income would not be not enough to live even a regular life whilst trying to achieve this. The programme we’d been given was or at the very least out dated.
Instinctively we knew, working longer and harder would only get us so far, it simply wouldn’t be sustainable. Once focused, we realised we needed to increase our income and grow our wealth in a more efficient way.
We were both practical people who, in different ways solved problems for a living, so we got to work. We used the talents we had, studied at home and gained the talents we didn’t have and slowly we figured it out.
Initially it wasn’t easy and it didn’t happen overnight but we’re getting there and our goals are easier to achieve. Our lifestyle is continuously improving with the funds and time to do more of what makes us happy, the future is looking so much brighter.
Money, in our eyes, is not all there is to wealth but what we do believe is you can manage your money like a pro. It can improve your peace of mind and give you the headspace to happily work out what wealth means to you.
How To Get Started
If the Idea appeals, here’s some of the basic information to get started increasing your income and growing your wealth. (we’ll also list some books on our good reads page if you’re interested in a deep dive).
Diversification is key. Rather than devoting all your time to one source of income, create as many sources of income as you can realistically maintain. Big business has been doing this for decades, take Amazon or Virgins’ business model for instance. Diversification not only has the potential to increase income, it also has the potential to reduce risk.
Almost any business or person can diversify and create additional sources of income. For example, if you’re a Plumber or have a trade of any kind, your present source of income could be providing a service for private home owners. You could diversify by offering your services to landlords or management companies.
Whether you already have a business or not, if you have a trade or knowledge, you could sell and teach what you know. Offering self-help courses or writing self-help manuals or books could be an option. There are many online platforms to utilise in order to achieve this.
Active and Passive sources of Income.
There are several sources of income, we’ll touch on these later in the text but they loosely fall into two categories. These categories are pretty much self-explanatory, an Active Source is where you do some work or provide a service, and someone pays you for it. Very simple and a direct connection between the work and payment.
A Passive Source is a little more complex, although its labelled Passive Income it’s not completely so as it still requires some work, however in most cases the lion’s share of work is required up front and the passive income is generated later.
An example of this would be a Blog. To begin, you build your website and write content in order to generate traffic. Later, once your following builds, you begin to see a return from sources such as advertising. The income is passive as it would continue to be generated even whilst you’re on holiday or sleeping.
7 Sources of income
1. Earned Income
This is money you earn by clocking in and out, weather you work in an office, hospital, or greenhouse. This income normally requires numerous hours or outputs to be met and its usually a main source of income.
There’s nothing wrong with earning money in this way, it’s important in that its usually the first step in building wealth. Where most of use trip up in this area is by equating more income to more hours worked. The more efficient approach would be to become more valuable at work and increase your rate of pay.
In this stream of income, it is important to constantly learn, develop and elevate your skills. In doing so you’ll earn more per hour, rather than spending more time working. Such development can even lead to self-employment or you could become an expert and consult in your chosen field.
2. Profit or Business Income
Money you make from a side hustle or when you sell a service or article for more than you made or bought it for. If you have a hobby or a talent you may be able use it to earn extra money. Eventually it might even become your main source of income.
This type of income is my personal favourite as it has the potential to grow exponentially.
If you have the talent to identify a need, and can fill such a need in an innovative and efficient way or if you can provide optimum quality in your product or service, the chances are you will achieve great success.
A few examples of this are writing a blog or selling your own products on sites such as Esty or Amazon. The list is endless and the sky really is the limit.
3. Royalty Income
This is money you receive when someone else sells your products, and you receive a share of the sales. Some common examples include royalties paid to authors for their books or the royalties paid to musicians and songwriters for their music or lyrics.
4. Rental Income
Historically, rental income is derived from property or real estate investments such as a house, an apartment complex, warehouse, or any commercial property.
Although it can be time consuming, it can be an excellent way of protecting your cash. Due to the many facets of property investment and the way in which it can be improved and manipulated, it can be a very lucrative source of income.
5. Dividend Income
When you buy shares in a company, you become a shareholder and are entitled to dividend payments if the company is in profit. If you have invested well and the company is successful and profitable it can generate an excellent passive income. See our Beginners Guide to Investing for ways to get started.
6. Capital Gains Income
If you buy an asset such as a house, Bitcoin, or gold and you go on to sell it at a profit, the profit you make is your Capital Gain.
7. Interest Income
This is money you earn when you loan your money out to an individual or an establishment such as a bank. For the benefit of having access to your money, you receive a fee in the form of interest payments. An example of this is a high interest bank account such as a Savings ISA.
Interest Income is an extremely passive income, you simply put your money somewhere and watch it grow. However, it’s only useful if interest rates exceed the current rate of inflation. It’s important to remember that if the rate of inflation is higher than your agreed interest rate, your savings will be losing value and you may want to put your money to work in an alternative way.
Wealthy people have been using these methods for centuries. Our pockets may not be as deep and we may not be able to utilise them all, but for those of us that wish to try, even a few sources of income can make a real difference over time.
Take your time, do your research, be patient and diversify your sources of income as much as you’re able to, and over time your wealth will grow.
We welcome your feedback, if you found this article useful, please let us know. If you have any further questions, feel free to contact us and we’ll try our best to help.