Rich Habits Podcast – 30: Demystifying the Average Millionaire’s 7 Sources of Income

Intro

In this episode of the Rich Habits Podcast, we demystify the average millionaire’s seven sources of income. By understanding these income streams, you can gain insights into how to build wealth and create financial stability. From earned income and dividend income to real estate rent payments and royalties, we explore the various avenues that millionaires utilize to generate wealth. Join us as we uncover the secrets behind the seven sources of income of the average millionaire.

Main Takeaways

Earned Income and Career Growth

• The average millionaire has 7 sources of income, which we will be demystifying in this episode.
• The first income stream is earned income, which is the base income from your career or business.
• To become a millionaire, you need to have earned income dialed in and be moving in the right direction financially and career-wise.

Dividend Income and Wealth Creation

• The second source of income is dividend income, which is cash paid to you for being a shareholder of a stock.
• Dividend income is important because if your money isn’t working for you while you sleep, you’ll be working to earn it until you die.
• SPYI ETF is a covered call ETF that tracks the S&P 500 and generates a 12% annual distribution yield.
• The option portfolio consists of a ladder to cover call strategy using SPX index options to source income.
• The goal is to provide high monthly income and have some really nice upside participation.
• Index options get a specific rule from the IRS called rule 1256, which makes them tax efficient.
• SPYI is for anyone looking for income but willing to take equity risk in the marketplace.
• Neosfunds.com is a way to reach out to advisors for one-on-one meetings.

Real Estate Rent Payments and Financial Freedom

• Rent payments from real estate properties are a source of income for millionaires.
• Buying a duplex, triplex, or quadplex before getting married is a pro tip to qualify for two FHA loans.

Royalties and Capital Gains

• Royalties from selling the rights to something invented is a favorite of millionaires.
• Capital gains from selling appreciated assets is a straightforward way to make a profit and reduce taxes in the following tax year.

Business Profits and Diversification

• Profits from businesses that you own can be a difficult but exciting way to diversify and build wealth.
• Most millionaires start with one successful business and diversify from there.

Interest Income and Financial Stability

• Interest from high yield savings, T-bills, and lending activities is a critical component to becoming financially stable and earning annual interest on your emergency fund.
• Emergency funds are important to avoid taking out 401K loans, going into credit card debt, or taking out predatory personal loans in case of an emergency.

Investing and Financial Education

• Opening a Roth IRA and investing in index funds is a great way for teenagers to save and invest for retirement.
• Buying a few shares of their favorite companies can get teenagers excited about investing.
• Diversification strategies may not be as important for someone nearing retirement with a shorter investment horizon.
• It’s important to think like an investor, not a consumer, when it comes to buying stock in companies.

Summary

Earned Income and Dividend Income

The first two sources of income for millionaires are earned income and dividend income. Earned income refers to the base income from your career or business, which forms the foundation for building wealth. Dividend income, on the other hand, is cash paid to you for being a shareholder of a stock. By investing in dividend-paying stocks and ETFs like SPYI, you can generate a steady stream of passive income while also benefitting from potential stock price appreciation.

Real Estate Rent Payments and Royalties

Real estate rent payments and royalties are additional sources of income for millionaires. Owning rental properties allows you to earn passive income through monthly rent payments. Additionally, selling the rights to something you’ve invented can result in substantial royalties. These income streams provide opportunities for long-term wealth creation and financial stability.

Business Profits and Interest Income

Millionaires often generate income through their own businesses, which can be challenging but rewarding. By starting with one successful business and diversifying their ventures, they create multiple streams of income. Furthermore, interest income from high yield savings, T-bills, and lending activities contributes to financial stability and allows for the growth of emergency funds.

Investing and Financial Education

Investing in index funds, such as through a Roth IRA, is an effective strategy for teenagers to save and invest for retirement. By instilling the habit of investing early on, young individuals can benefit from compounding returns over time. It’s crucial to think like an investor, focusing on the long-term potential of stocks rather than short-term consumption. Additionally, diversification strategies may vary depending on one’s investment horizon.

Conclusion

Understanding the seven sources of income of the average millionaire provides valuable insights into wealth creation and financial stability. By diversifying income streams through earned income, dividend income, real estate rent payments, royalties, business profits, interest income, and investing, individuals can build a solid foundation for long-term wealth growth. Whether through entrepreneurship, investments, or strategic financial decisions, everyone has the potential to achieve financial success.