7 income streams of millionaires: an open discussion of passive income

Have you ever heard the statistic that millionaires have an average of seven streams of income?

I tried to find the survey, report, or some official repeating that statistic but was unsuccessful. That said, seven sounds good to me.

More importantly, how do we get them? (if you want to jump ahead, here are some great passive income ideas)

What spurred this blog post was an idea put forth by my friend at ESI Money in which he talks about how the first million is the hardest. ESI shares how his net worth growth has accelerated. The first million took 19 years of work (the clock starts when he started working, not at birth!) but the 2nd million took just 4 years and 9 months.

The more money you have, the more money you’ll get. 1% of $100 is just a dollar. 1% of $100,000 is a cool grand.

The rich do get richer – here’s the playbook.

Table of Contents
  1. Active income vs. Passive income
  2. How do you accumulate wealth?
  3. You are subject to financial gravity
  4. Grow Your Active Income First
  5. Then Grow Your Passive Income
  6. Common (passive) streams of income
    1. Interest (#1) and Dividends (#2)
    2. Capital Gains (#3)
    3. Royalties (#4)
    4. Rental income (#5)
    5. Business income (#6)
  7. How I built my streams of income
  8. My 7 streams of income (updated 2021)
    1. Private Businesses
    2. Stock Market
    3. Real Estate Investments
  9. Not all passive streams are equal
  10. What’s the point…

Active income vs. Passive income

Let’s start by talking about making money, or, your income.

There are two types of income – active and passive.

Active income is when you do work and are paid for that work. If you work at McDonald’s, you are paid for the hours you work. If you work in an office, you may not clock in and clock out but you are paid based on the work that you do. If you do nothing, you will no longer be paid.

Passive income is when the payment is not directly tied to active work. Interest and dividends are prime examples of passive income. Typical passive income sources are front-loaded with active work, for which you are paid a small amount, while the bulk of the income comes later.

Don’t mistake passive income with zero work. It’s still working, it’s just that your income is not directly tied to the hours worked. Anyone who owns rental properties knows that it’s considered passive income but there is quite a bit of work involved. The work is front heavy but if you are lucky, you can collect rental checks without incident for many months before having to do work.

For example, my friend Paula shares monthly real estate investment reports. In March 2016, she profited $7,461 on less than six hours of work. In July, she spent three weeks and $13,648 renovating a rental to increase yearly income by $4,740. Rental income is passive but it requires work.

How do you accumulate wealth?

Here’s the next key to the puzzle.

The key to accumulating wealth is uncomplicated:

  1. Sell your time for money,
  2. Spend less than you earn,
  3. Invest your savings so it will grow without your active intervention.

That’s it. It’s a simple input and output problem.

There is just one constraint on the whole system — your time in this world.

You have just 2.21 billion heartbeats. At 60 beats per minute, that’s a little over 70 years. Each beat matters.

There’s another constraint, and here is where wealth inequality rears some of its ugly head, and it’s known as Maslow’s Hierarchy of Needs.

You need to eat. You need a place to sleep. And both of those, and other needs, require money.

So in an ideal world, you could take your time to build a massively successful business (or maybe a few failures before the massive success), but in the real world, you need a job that will pay you now so you can feed yourself, clothe yourself, and secure a place to sleep.

I call it financial gravity.

If you want to really start tracking your finances, and I mean not just your spending but your investing (that’s where wealth is built), give Personal Capital a look. It’s a cornerstone of my financial system and I think you owe yourself a look. 100% free too.

You are subject to financial gravity

Think of your net worth as a airplane. You are trying to get it into the sky and soar effortlessly.

On Earth, we are all subject to the same gravitational force. The larger you are, the more that force exerts on your body. If you weighed nothing, you would fly away.

Financially, our net worth airplanes are all subject to the same financial pull. Where you choose to live, how you choose to live, the products you buy, etc — they will determine how large and heavy your plane will be to hold all that stuff. The greater the need (monthly expenses), the more thrust (income) you’ll need to take off.

Your net worth airplane takes off when your thrust (income) exceeds your gravity (expenses).

Additionally, there will be a transition point when it’s less like a plane and more like a rocket. It’s when passive thrust plays a greater role than active thrust. Your investments, hopefully, grow to the point where they exert the greatest impact on your net worth and your income and savings (income minus expenses) plays a smaller role.

That transition point can be challenging to navigate but it is also very freeing.

Grow Your Active Income First

If you have no other resources, you start by focusing on active sources of income (job) until you’ve saved enough so that you can build up passive resources.

When it comes to the idea of saving money, there are two schools of thought:

  • Save more – This school has you focus on living “frugal” and cutting your expenses to the bare minimum.
  • Earn more – This school has you focus on earning more, on side hustles, businesses, etc.

It’s a false dichotomy. You can do both and you should do both.

The difference is that cutting expenses is immediate, much like active income is immediate, whereas earning more is often a long term play, like building sources of passive income. So you cut what you can now (e.g. cut your cable) and secure immediate savings while you build up your passive sources (e.g. put cable savings into dividend stocks).

The importance of saving money, especially early in your life, cannot be overstated.

When you start with nothing, or close to it, you are forced into active income. What you can save can be converted into passive income. If you don’t save that active income, through your own choices or choices thrust upon you, you will be stuck in that phase forever.

Many of those passive income sources, like qualified dividends and long term capital gains, also get extremely favorable tax treatment. If you’re in a low tax bracket, you may pay zero taxed on capital gains. If you are in a high tax bracket, it’s only 15% – far lower than ordinary income tax rates.

Then Grow Your Passive Income

I think of each passive stream as falling into one of two categories:

  • You build something (business) that provides value and then capture some of that value.
  • You lend money to someone who will build something of value and they pay you for that money.

In both cases, you need savings.

When you build a business, you’re giving up active income (instead of working for pay, I’m volunteering at my own business) for future active and passive income. In the meanwhile, you’ll need a way to pay for your expenses. It could be that you’re building a business on the side, so you still have a day job, or you’re living on those savings. Either way, you need a cushion.

When you lend money, you’re lending your savings to someone who will put in sweat equity to grow it into more.

All of those potential future passive streams rely on having savings.

Common (passive) streams of income

As you build up your savings and envisage your future passive streams of income, here are some of the common ones (here’s a longer list of 21 passive income ideas). The numbers are arbitrary and meant just to keep track of the number of common streams.

Interest (#1) and Dividends (#2)

The two most common passive income streams are interest and dividends.

Interest can come from a variety of sources but the two biggest are from your interest-bearing deposit accounts (like a savings account) or loans, either to individuals (peer-to-peer lending or private notes) or companies (bonds, notes).

Interest is not super sexy to think about but it’s also something that requires very little effort. We make sure we put any savings into a high yield savings account and then never think about it again. It’s like getting cashback on a credit card – you pick the card once and just get a small drip in return.

Dividends are payments from investments and partnerships. When you start, most of your investments will be in the stock market and you benefit from qualified dividends and their favorable tax treatment. As you expand your portfolio, you may enter into partnerships that make payments.

The holy grail of dividends is qualified dividends because they’re taxed at long-term capital gains rates, which is usually much lower than your ordinary-income rate. Not all dividends are qualified and the ones that aren’t will be taxed like interest.

Capital Gains (#3)

You earn capital gains from the sale of investments. This is passive in the sense that you may spend time researching companies but you don’t necessarily “work” in the company to earn. It’s also something that is lumpier in the sense that you pick and choose when you realize capital gains (or losses).

We consider capital gains as a passive income stream even though it’s so lumpy because you can turn a holding into a stream by simply selling shares from time to time. It’s not a stream in that it offers yield with no reduction in principal but it is a stream.

Royalties (#4)

Royalty income is income you earn when others borrow or use your property. This could be something you purchased or something you created. An author may write a book and a publisher will print, distribute, and sell that book. The author gets a percentage of each sale as a royalty and it’s a well-understood system.

If you are not the creator of the work, you could buy the work from the creator and license it to others. For example, you could buy the music rights to a song and then license it for use to others.

With the rise of ebooks and self-publishing, I’ve known several writers who have built up a library of books for sale on Amazon that create a nice side income without day to day effort. The beauty of that type of business is that you build a following and each person who discovers one of your works is introduced to an existing library.

Rental income (#5)

When you own real estate, you can earn rental income from individuals or companies who rent the space from you. This can be residential as well as commercial property, with different rules for both.

Many years ago, this meant owning the property yourself. With the rise of crowdfunding platforms, smaller investors can own just a fraction of a property along with other investors. You can use this as a way to diversify your real estate portfolio without putting too much into one investment.

This is especially fascinating in the area of investing in farmland. Farmland consistently increases in value and offers a cashflow component that may be appealing to investors.

Business income (#6)

This one may be a little deceptive in the sense that it’s not necessarily “100% passive.” If you own a business, some portion of your business income will be passive in the sense that you aren’t personally laboring to earn every dollar the business brings in. You are building something that generates income without active work, like a website or the sale of information products.

When I started a blog, I had no idea it would become a business that earned money throughout the day – even if I was playing with my kids or sleeping.

There are others, less common income-producing assets, but those are the six types of most millionaires.

When they say “7 streams of income,” they don’t mean 7 different types. They mean 7 streams from 7 sources, even though the sources can be the same type. The idea is that you should be thinking about different ways to diversify your income streams and not relying on any one to build wealth.

How I built my streams of income

Rewind the clock to the early 2000s. I was single, but dating my future lovely wife, and working a 9-to-5 job in the defense industry. I kept my expenses low, my savings were high as a relative percentage of my income, and I was avoiding self-inflicted financial wounds like loading up on a lot of fixed expenses (cars, rent, etc).

I still had an abundance of time, since my girlfriend was still in college, and so I started a blog. The blog would be a precursor to this one in the personal finance world.

The blog would transition into a business, generate income, and I’d put much of that income away into savings. Those savings lived in a taxable brokerage account at Vanguard and invested in their low-cost index funds. I would occasionally purchase dividend stocks, especially during the housing and financial crisis, but mostly kept it in Vanguard.

I transitioned into working on the business full-time for a few years before moving on.

Throughout, I invested the profits into other areas that I felt were differentiated from my core business. Savings were put into passive sources of income and kept as cash.

My 7 streams of income (updated 2021)

Now that I’ve explained how I view building streams of income and my personal story, I’ll share with you my 7+.

Private Businesses

I run several online businesses now (all it takes to start one is a domain, hosting, and maybe incorporation). There are two notable ones. The first is a meal plan membership site called $5 Meal Plan that I co-founded with Erin Chase of $5 Dinners. The second is the umbrella of blogs I run, including this one and Scotch Addict. They pay me ordinary income as well as qualified distributions since I’m a partner.

Stock Market

The bulk of my investment assets are in what we consider the “stock market,” mostly in a variety of Vanguard Index funds. I am paid interest, ordinary and qualified dividends, and will eventually be sold for capital gains. I also have some private placements that are debt and equity instruments which so far just result in interest.

To give you a sense of scale, 80% of our investable assets are in the stock market.

Real Estate Investments

Under the category of real estate, I’ve tried owning property but haven’t had much success so I tend to rely on crowdfunded real estate sites where I don’t own any property outright. It’s small investments in partnerships that own the property.

It started with three investments on the RealtyShares platform (which was shut down) and each has paid out according to schedule and only one remains (the others closed out as expected, thankfully!). I’ve looked at some others, including Fundrise and stREITwise, but I’ve only used RealtyShares.

I’ve also invested in private funds with operators I know and trust. One invests in multi-unit apartment complexes in the Phoenix, AZ area and another buys mobile home parks across the country. I view these as recession-resistant and these operators are top notch.

I invested in three farms through AcreTrader as well. I like farmland as a way to diversify. Finally, I’ve made hard money loans to real estate investors (it was just one individual and the loan has since closed). They’re simple loans where I am paid interest on a monthly basis.

There are so many more types of streams out there than what I’ve listed – I know a lot of people who collect rental income (from rental properties) and royalties (like from books or other creative work) – but I don’t have any of those.

To recap, my 7 streams are:

  • Revenue from two internet-based businesses, this blog and a meal plan business
  • Bank interest
  • Interest from loans, hard money loans to an individual and crowdfunded real estate deals
  • Interest from stock investments
  • Capital gains from stock investments
  • Ordinary and qualified dividends from stock investments

It’s more than 7 sources but in terms of types, it’s only four types – Revenue from the business, interest on loans, and dividends, and capital gains from stocks.

The key thing to note in those various streams is how few of them rely on my active participation daily and how they are fueled from savings. My active participation is in this blog and $5 Meal Plan. Everything else is passive, outside of routine maintenance like updating my net worth record, and none of them would be possible if I didn’t have the savings to invest it.

If you were to look at my tax return for 2015 (when I originally wrote this article), here is how my AGI broke down:

  • Wages – 16% (part active, part passive)
  • Interest – 11% (passive)
  • Dividends – 21% (passive)
  • Capital Gains – 34% (passive)
  • Business Income – 18% (part active, part passive)

In 2018, the AGI shifted a bit as this blog started getting more traffic and earning more income:

  • Wages – 26% (part active, part passive)
  • Interest – 5.4% (passive)
  • Dividends – 19.5% (passive)
  • Capital Gains – 10.6% (passive)
  • Business Income – 37.5% (part active, part passive)

The majority of our income is passive and those funds continue to accumulate (with occasional unrealized “paper” losses as the market moves) without my active participation.

It’s at the point where the financial benefits of active work no longer have an impact on our net worth. Last year’s wages divided by our net worth was less than 1%.

This transition was one of the biggest personal challenges I faced after “retirement” – a subject I discussed in a post on What They Don’t Tell You About Retiring Early on the great Our Next Life blog. Decoupling work from pay was a huge step.

Not all passive streams are equal

There is only one stream where you bear all of the risks but reap all of the rewards – the stock market. (we can quibble over the use of absolutes but I think you get the point)

In every other case, you bear more of the risk than the rewards you potentially reap because you need to pay someone who is actively working on it. If you invest in a business, you take on a lot of risks but you don’t get all of the rewards. Before distributions to shareholders, operators will be paid.

Not only that but in almost all other cases there is the illusion of influence, which is itself a psychological and emotional cost. If you invest in a business that your friend or family member is running, you can see how things can get messy. You have thoughts on how things should be done, they have competing thoughts if things aren’t going well… we know how this story goes.

That being said, the upside to many of the other options can far exceed the stock market and that balloon payment is very appealing. In five years, I built a website from $0 to seven figures. You cannot do that with the stock market.

The cash flow, leverage, and tax benefits in other passive streams, like real estate, is also very appealing. Donald Trump took a $1 billion tax deduction a few years ago! You cannot do that with the stock market either.

What’s the point…

The point is that wealth accumulation is only possible if you can convert active work into income. The higher the rate (pay) the better.

Then avoid self-inflicted financial wounds (you can’t do much about what life throws at you) — then convert those savings into passive income sources.

One final video to cement this idea that the path to wealth is through passive income – it’s a TED talk by Thomas Piketty, author of Capital in the Twenty-First Century.

Capital in the Twenty-First Century was published in 2013, it’s very dense with a ton of data, and it focuses on wealth and income inequality.

The core idea is that, over the long term, the rate of return on capital is greater than the rate of economic growth.

This is how wealth becomes concentrated and one of the powerful reasons to save more and have your capital work for you.

If you watched the video, he goes into a discussion about shocks (about 8 minutes in) like bad investments but how they don’t matter as much if r (rate of return) is greater than g, the rate of economic growth. If r = 5% and g = 1%, then you can lose 80% (the difference) and still be ahead because the return on the remaining 20% has paced with economic growth.

This is a similar idea to my idea of financial gravity. If your savings can grow at a rate that exceeds your spending, you leave the gravitational pull and now your income is decoupled from your active work.

Now, all that said, if capital (savings) grows faster than the growth of the economy, those with savings will see their wealth grow at a faster rate than those who rely on the growth of their income. While this is not an extension of Piketty’s argument (you can’t take an idea that applies to a population and a whole economy and boil it down to the individual like this), it’s not an unreasonable conclusion to take and apply to your own life. (Piketty does talk about this on an individual level, but says it’s more impactful for billionaires vs. millionaires – though we have limited data into individuals)

If all the talk of passive income and having your money do the work for you didn’t convince you, Piketty’s work (and talk) should put the final nail in that coffin. 🙂

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Jim Wang

About Jim Wang

Jim Wang is a thirty-something father of three who is a frequent contributor to Forbes and Vanguard's Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.

Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology - Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.

One of his favorite tools (here's my treasure chest of tools,, everything I use) is Personal Capital, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you're on track to retire when you want. It's free.

He is also diversifying his investment portfolio by adding a little bit of real estate. But not rental homes, because he doesn't want a second job, it's diversified small investments in a few commercial properties and a farm in Illinois via AcreTrader.

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  1. Ten Factorial Rocks says

    Great post Jim. While it is convenient to lump the entire dividend income as one passive stream, in reality, it is several. If you have 30 companies across 10 major industry sectors, each paying you dividends, then you can consider having 30 streams or at least 10 passive streams, from each of the diverse industry sectors. I find this more diverse than relying on rental income from one investment property tied to one location and one good tenant. Your point about website is absolutely valid – will be great to have Ten Factorial Rocks worth 7 figures in less than 5 years as you have done!

    • Jim Wang says

      Very true and you need to treat it as separate streams because you need to keep an eye on each of the companies.

      For the purposes of this discussion, I felt lumping them together made more sense.

      • Jason says

        What a great article! I somewhat wasn’t prepared to spend time in it but you nailed down the details of how our streams should be broken up. Which I credit the original time I heard of this through RIch Dad, Poor Dad, the book. I will spend more time researching your articles. Thank you.

    • Alison D. Gilbert says

      I love the concepts in this post:
      • distinguishing between active and passive income
      • having enough income streams to be considered millionaires.
      Just for the fun of it, I made a list of both categories and what we have at least seven income streams in both categories.
      In the ‘real world,’ we are far from millionaires. Yet, we also live so frugally that in ‘our world’ we are aiming to be ‘millionaires’*.
      But what does it mean to be a millionaire? In my opinion, what it really comes down to is not the amount of money one has or the number of income streams one has. It comes down to the following:
      • Am I free from the fear of financial insecurity?
      • Am I able to spend my time enjoying my life rather than having to work to survive?
      • Do I worry about money or enjoy what I have?

  2. Chad Carson says

    Love this article, Jim. “Financial Gravity” is such a good visual. It takes a lot of active work to escape early on, but finally that momentum (and passive income streams) push you through into orbit.

    I also like the distinctions you make about the illusion of influence. I have control over most of my investments (real estate related) and have 10% in passive index funds. But I think as I continue to diversify, I like putting it into the two buckets of (1) I control (2) no control (stock market). I like that clarity. The illusion of control does add stress and hassle that detract from enjoying your life. Not worth extra returns to me.

    Did you put hard money loans in the “illusion of control” category? I could see limited partnerships as being very frustrating, particularly with friends or family. The difference with loans, however, is the terms are pretty clear. You pay me interest, or I get the collateral. I would put that in the “I control” bucket.

    • Jim Wang says

      Financial gravity is an idea that has bounced around in my head for a while. Then, once I was semi-retired, and talking about decoupling work from pay (I first used that term here – https://ournextlife.com/2016/10/19/jim-wang-lessons/); the idea truly coalesced. I think financial gravity is something we’re all hoping to escape.

      As for influence, it depends on how much extra those returns are. 🙂

      I put hard money loans into the no control. I’ve only done one, it’s been relatively small, so even if I felt control it wouldn’t stress me out because the sum is small. That said, it’s also gone well (or rather, on schedule). It’s only frustrating if things aren’t going well. Everyone is happy in a bull market. 🙂

  3. ESI Money says

    My passive income streams include:

    Real estate
    Dividends
    P2P Lending

    And that’s 100% of income since I’m retired. 🙂

    Working on making blogging a big part of the above but doing so is certainly not passive at this point. 🙂

  4. Michael says

    Great post, Jim!

    Thank you for sharing the breakdown of your income streams. Right now, my income streams are – work, dividends, interest come, and hopefully real estate in the near future :).

    –Michael

  5. Sarah @tortoisehappy.com says

    Passive income is the gap in my financial plans at the moment. I started investing nearly 2 years ago but I’m so close to the beginning of that journey that I don’t quite see it as making income yet. I’ve been better with employer pensions and they’ve grown a really good amount over the last 12 months, but I won’t get my hands on them for a long time yet.

  6. Dustin says

    Jim I love this topic and that you are offering to have an “open discussion”.

    So one thing I have to disagree with after having done hours and hours of research from Multiple CPA’s is “Dividends – 21% (passive)”. Thats actually not right. Thats actually “active”. I actually paid 2 different CPA’s to do research on this topic. One of them I paid 500 dollars to actually dig out the IRS tax code and “prove” it. If you are active in a business and the business pays you dividends its still active income (not passive).

    For example my business is a LLC taxed as a S corp. I am active in it and my wife is not. She owns half the company because she fronted the money to start the company (but is not active at all in the business). I get paid a W2 salary for my work I put into it and any profits are distributed to my Wife and I as “dividends”. However the dividends are still taxed as active income at the higher tax rates.

    It frustrates me that I (and especially my wife) are not allowed to have “passive income” from the business. If there is some trick that you know of to allow for passive income I am all ears. However I have seen so many people get bad tax advice I wanted to mention this.

    • Jim Wang says

      You are right, so you’re mixing up “distributions” and “dividends” when it comes to taxes. My dividends are strictly from equity investments, most are qualified, and I put the distributions from my LLC into “business income,” which is still taxed very closely to ordinary income (not subject to Social Security and Medicare).

      It may be frustrating but it still makes sense, it’s not like you’re a passive member of the business. It would be nice to have it taxed at the dividend tax rate though!

  7. Dividend Diplomats says

    Amazing article Jim. Jammed packed with great information and inspiration for a finance blogger looking to find ways to diversify income streams. Building up your capital, achieved through saving more than you earn as you described, will open doors to a lot of activities in the future. The name of the game is putting your savings to work to turn expenses and idle cash into income producing assets. It isn’t easy when you are starting from $0, but through discipline and time you will eventually be able to achieve your goals and begin using the methods you described to diversify your income streams.

    I’m close to hitting my first $100,000 and it feels like it is taking forever. I’m looking forward to what avenues/income streams will open up once my capital reserves build up more. This post inspired me today and served as a refresher to keep on chugging along and to keep on grinding. Good things will freaking happen!

    Bert, One of the Dividend Diplomats

    • Jim Wang says

      Thanks Bert!

      Whenever you save capital, you always gain flexibility and it’s up to you to put that to work so you can gain more. It’s not easy and to a small extent you need luck (to avoid financial landmines), but it’s worth it.

      Nothing magically opens up but when your money works on your behalf, it can seem like magic. Just don’t fall into the trap of being enamored by the idea of certain investments (like a bar, restaurant or other “fun” thing), stick with the boring ones. 🙂

      • Gerald says

        Saving capital? Credit card companies have it all wrong. Instead of crediting 2% cashback, they should deposit the 2% into a savings account, and thus, creating a habit: save while spending. When I run out of money to save for the current month, I stop spending. No monthly budget is the same. So, save while spending is the new monthly discipline.

  8. Millennial Money says

    Whoah – I haven’t read an entire post this long in awhile. That’s how hooked I was. It took me 5 income streams before I became a Millionaire. I now have 11 and it’s fascinating to see which ones are now generating the highest ROI 5 years in. My side digital marketing business is by far my most profitable, but also requires the most of my time. I have finally started automating 4 of these streams (websites I bought) and it feels great to make money not doing anything – well I do have to make sure that my credit card doesn’t expire on my hosting account! I really like your blog – just found it on the Rockstar Forum. I’ve added it to my regular readers. Looks like your crushing Pinterest – where do you make your images?

    • Jim Wang says

      Thanks Grant!

      It is always fun (when things are going well!) to look back at the various streams to see what’s working and what’s not. I found that a lot of my angel investing just wasn’t working well, fortunately it wasn’t a lot! Side businesses are always nice, vs. pure investments, because of actual control. Plus you can shut it down if things go south… hard to tell someone (and convince them when you’ve only kicked in a few bucks) that it’s time to close up shop and return some capital.

      I use Canva for images.

  9. Amanda says

    Such an inspiring post Jim! Financial gravity is a spot on term and your perspective is so refreshing.
    As a millennial in my mid-20’s, i’m only just starting out on my journey (to what hopefully will be at least 5 streams of income one day) and i’m trying to save all that I can to then make my money work harder and invest. It’s difficult though because a lot of people say you should be saving for retirement and have an emergency fund (which is so true) but then on the other hand, we are told to take risks and invest our money (usually in the stock market or real estate). And as a millennial it’s so hard to do both of these things sometimes.
    So, while sometimes it can all be a bit disheartening when you’re not moving as fast as you had hoped, reading articles like this is such a great reminder that it’s ok if it’s takes 10-20+ years to build your wealth.
    Thank you for writing this!

    • Jim Wang says

      It is hard to do both but you’re not supposed to. You’re supposed to get your safety net down THEN try to do high wire acrobatics above it – not set up the two at the same time. So get retirement and your emergency fund squared away, then consider the stock market (taxable) and real estate. There’s no rush! Don’t let others dictate your future because they don’t have the same priorities as you. 🙂

  10. PatientWealth says

    Interesting Post:

    My Job
    Free contributions by my company to my 401(k) [passive]
    Rental Property [passive]
    Capital Gains on Investments [passive]

    Focusing on earning an equity return for the ownership share of your investments usually results in more accelerated income than the passive income streams that pay out interest / dividends periodically since they are taxed and are often not giving a return that is as high as equity.

    • Jim Wang says

      You do lose a portion of your return to taxes when you take a distribution, so keeping gains on paper (so companies who will reinvest profits vs. paying out dividends) is often “better” from that perspective. In my situation, where I’m using it as a way to supplement income, the dividends serve a different purpose.

  11. ChasingChoices says

    Love the article, Jim. I love how you simplified the whole plan of building wealth from the start: work actively, save, convert savings to passive income streams. Love the framework.

  12. Juan says

    Jim, this is a great article. I really enjoyed your view on “financial gravity” and the distinctions you made on passive income. For us it comes down to:
    1) Dividens
    2) P2P notes
    3) Rental income
    4) Capital gains on investments

    • Jim Wang says

      Thanks Juan!

      That’s a great start – I think folks with an eye towards financial independence “get” the idea very quickly since it lines up with what they’ve been thinking about a lot. I thought about dabbling in p2p but never got into it.

  13. Nadeen Zamora says

    Great article! My fiancé and I are working on our 2nd stream of income via rental property. We are still in the process of learning how to create more streams of income. You did a great job at breaking it all down and it was easy to understand. I will definitely share this to my friends and family. Thanks again.

  14. The Lifestyle Engineering Blog says

    Jim,

    This article is perfect for those of us that are experimenting with our own financial airplanes. It is amazing how quickly we can go from taking our first flight to a well oiled machine. Thanks to compnding interest we can turn our Kitty Hawk into ATL.
    Nice article!

    -The Lifestyle Engineering Blog

  15. Amy says

    Jim,
    Great article….Do you have any recommendations now that we are late into this economic cycle?
    Thanks,
    Amy

  16. Austin says

    This maybe one source for the seven income stream rule:

    “Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.”
    ‭‭Ecclesiastes‬ ‭11:2‬ ‭NIV‬‬

  17. Andrew Kerr says

    Jim,
    Awesome article. Congrats on being featured in PFB newsletter today.

    The 7 streams of income is something I have been focusing on over the past year as a way to diversify outside of real estate.

    I used W2 or earned income to invest in real estate and equities. These give me semi-passive rental income and dividend income. And on occasion they generate capital gains income.

    Now I am focused on using those three to build more streams.

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