Have you ever wondered how to build income streams like the millionaires have? Do you know which streams they use? I recently watched Graham Stephan’s video on the topic (a Millennial and a millionaire). He referenced a study, published by the IRS, which studied the tax returns of a sample of 6,053 wealthy individuals who died between 1996 and 2002, as well as the work of Tom Corley, author of ‘Rich Habits,’ who studied the habits of millionaires during a five-year study.
His research intrigued me, but I wanted to further it through making it more practical.
My article is aimed at three things:
- providing a concise summary of the two studies
- highlighting glaring misconceptions we still have about millionaires
- demonstrating how anyone can build income streams today, which will place them on a promising path to becoming a millionaire
Let’s dive in.
What research tells us about millionaires and their income
To summarise, the IRS’ study shows that wealthy people build up to 7 income streams:
- Investment income — Dividend income from stocks owned.
- Earned income — Paycheck income from contracted employment.
- Rental income — Rents from real estate they own.
- Royalty income — Payments for royalties from selling rights to use something they’ve written or invented.
- Capital gains from selling appreciated assets.
- Profits — Income after expenses from businesses they own.
- Interest income — Money from savings, CDs, bonds, or other lending activities.
Corley’s research shows that self-made millionaires build multiple income streams:
- 65% of self-made millionaires had three streams of income.
- 45% of self-made millionaires had four streams of income.
- 29% of self-made millionaires had five or more streams of income
Diversification of investment has been around for ages. But these findings show that this idea can be applied to income streams. Even though both these studies have been public for a while, people still hold misconceptions about what it is like being or becoming a millionaire, which might be the source of what is holding people back to applying the money-making practices of the wealthy in their lives.
Let’s examine them.
What we tell ourselves: misconceptions about millionaire money
#1. All millionaires’ income is mostly passive
We all think of millionaires as people who are living their most glamorous life simply getting money in. That could not be further from the truth. Many famous millionaires, regardless of their niche, work multiple jobs (even after becoming millionaires).
Consider Graham Stephan — he is a real estate investor, property manager and content creator. What about Elon Musk? He is currently the CEO, founder, inventor, or adviser for SpaceX, Tesla, SolarCity, Starlink, The Boring Company, Hyperloop, OpenAI, Future of Life Institute and Neuralink. Kim Kardashian? A model, TV and Media Personality, Actress, Voice Actor, Fashion Designer and owner of multiple businesses. Those all seem as soul-crushing 60–100-hour workweeks to me.
Yes, there are investments all millionaires make intending to generate passive income. But amongst the most famous continue working intensively until old age, some even after they retire. I am talking about the likes of Warren Buffet, who is still acting CEO of Berkshire Hathaway, or Amancio Ortega (founder and long-time CEO of Inditex), who, after his official retirement, continued ‘going to work every day.’
It is common to believe that millionaires ‘don’t have a real job’ or ‘they don’t work 9–5 as you and me’, hence why they have the time to build income streams, but this could not be further from the truth. Income is generated gradually and is pillared with the most stable and secure being first. Risky investments being made once you have excess money to spend, not the other way around.
#2. They work for themselves
In reality, each successful businessperson works for somebody. If you think being self-employed means working solely for yourself — you are truly delusional. Your company may be dishing the paychecks, but you have a product or service you provide to a marketplace through which you make money. In which case, you work for the people that buy it.
Millionaire social media influencers treat their followers as their employers. Ultimately, they are the ones that helped them gain their status. If you are Elon Musk, your numerous stakeholders (buyers, shareholders) could (and almost did) quite literally end your successful business overnight if you step out of line. The moment you stop providing value to high-stakes stakeholders — you fall into oblivion, no matter who you are.
#3. Many millionaires become rich overnight
It certainly appears so, doesn’t it? I mean, who remembers Elon Musk in 2002, when eBay bought his company PayPal? Or Jeff Bezos in 2005, when he launched Amazon Prime (worth over $8.5 billion in revenue for Amazon in 2017)? What about Mark Zuckerberg anytime between 2004–2008, when his ‘college directory’ Facebook was rising in popularity?
Looking at search data, interest towards them only came when they were already millionaires, if not billionaires, with Zuckerberg being the first out of the three to be picked up by mainstream media, with Forbes featuring him in the 2008 edition of the World’s Billionaire List.
Looking back to these, and countless other millionaires, we now know their success did not come overnight. There isn’t a single event in their lives that accelerated their wealth from zero to millionaire — it was a result of deliberate, hard and silent work for up to 10–15 years.
Start today: Actionable tips to build millionaire income streams
Your employment income will be what funds your other income streams. Even if you do have investors, you will be expected to work for them and manage the company, so technically, this will be your job.
Having a steady income will take up a large proportion of your time. Still, it will provide you with stability to diversify your income and experiment with your passion projects and investments.
One tip you could utilize is to pursue a role with uncapped income potential based on performance as a way to maximize your income from those 40 hours per week, but this might not always work in your favor, so use with caution.
2. Invest in stocks.
Even if you have $1.00 in your account — you can start investing. In my opinion, stock investment is the second-best most consistent (property investment being the best), long-term, passive source of income if you allow it to be just that — consistent, long-term and passive.
Let’s break down why.
Allowing your income to be consistent means letting the profit pile up without spending it or reducing the amount you invested. Ideally, you will only increase the amount, but if you allow yourself to be patient in the long-term and you place your earnings back in the market, you will earn compounded interest — profit on your profit. This will only work if your investment strategy is low-risk, long-term and passive, working on the backburn while you do other things.
Don’t allow yourself to be consumed by the hold-sell day trading game. In 2011, a research paper revealed that individual investors who traded actively and speculatively without diversified portfolios typically lost money over time.
Experts suggest starting early with this type of income building. As it grows exponentially, the longer you have it due to compounding — ‘the process in which an asset’s earnings, from either capital gains or interest, are reinvested to generate additional earnings over time.’
3. Start collecting rent
I know. Saving up the money to buy your first property is hard. Trust me, I know. I worked multiple side jobs, on top of my normal job, just to buy one at an early stage in my life. If you start small, though, you can scale more quickly. This can mean many things.
For Beginner to Intermediate Investors:
- Talk to your landlord about subletting a room or a bed in your room, if that is possible if you don’t own property. You can create listings on multiple sites, which can generate a semi-consistent income stream.
- Buy a share of a rental property. You buy 10–50% of property on the rental market and collect the relevant proportion of the rent. This is very good for student accommodation properties, as well as vacation properties.
- Buy a store or a garage in an in-demand area or at an International airport.
For Intermediate and Expert Investors:
- Find properties that you can buy with the income you have (might not be your dream home, but they might be someone else’s) and place them on the market.
- Find bigger properties you can buy cheaper than their market value and increase in value through doing easy, quick (even DIY) renovations.
The idea is that you save enough to buy your first property, and then use this as an income stream to make further investments. It doesn’t matter how big or small it is — it matters that it will consistently bring money in, so that is the research you need to do. Ask yourself questions like — would there be demand for this property for renters, and if you are buying internationally — what will your taxes look like?
Things to consider are:
- schools and universities nearby
- the safety of the area
- the presence of consistent employment opportunities (factories, offices, stores) in the area
- potential target groups of tenants
- the sturdiness of the building.
4. Create a digital product and allow others to use it at a cost.
Royalty income is payments for royalties from selling rights to use something that you created. The YouTube video you make is used as a vehicle by the platform for ad placement, for which you are given a royalty payment. The Medium article you create behind a metered paywall serves a similar purpose, as you are allowing the site to use something you have written. If you are an academic, writing journal articles will earn you monthly royalty fees based on readership and impact of your research. If you are a musical artist or a photographer, your work can be monetized similarly.
Digital products can and should (in my opinion) be created around your areas of expertise. They should demonstrate your abilities. That is not necessarily a ‘must’ through, I mean, look at the rise of OnlyFans.
In recent years, tutorials and online courses have also skyrocketed into popularity, creating a platform for many niche topics to be examined in this format. Even if you consider your skills non-digital, there is almost certainly a chance that someone would benefit from a well-designed course on sewing, household electrical maintenance or wall plastering, sooner or later (I did in the past four months, of all three).
There are no limits on what you offer as long as there is a demand for it and value in it.
5. Start a business and grow it in your free time.
This might seem like commonplace advice, but the key phrase is — in your free time. That is, after work. I am painfully aware that this is not something that would appeal to anyone. Still, it appears to be commonplace for every millionaire in the book to aim at diversification of their ‘main’ source of income and generate multiple income streams, each of which of equal merit.
At the same time, avoid burn-out and attempt to maintain a healthy work-life balance, whatever this means for you.
6. Open up a savings account and forget it exists.
This is easy. I use an account that gives me a higher interest rate if my savings are consistently (each month) higher than £50.
You should always choose a savings account that pays you more than 0.75% on your money and set up a payment order from your bank account to a savings account for a set amount each month. Increase the amount, based on the growth of your earnings and treat this as a retirement fund. In other words, forget about its existence and revisit it in 20 years.
7. Sell appreciated assets.
An appreciated asset is an asset that has a higher market value than its book value or taxable value and which, upon its sale, will generate a capital gain. Examples include works of art, rare books, and antiques.
I know this sounds crazy-hard but could be relatively straightforward. You know about thrifting. I mean, who doesn’t — it’s such a hot topic nowadays. I regularly visit second-hand shops, which sell clothes by the kilo and find luxury, often never-been-used clothing there. The store owners don’t know or don’t have time to check the value of every item they sell. Buying such clothes and selling them, priced appropriately, will generate a capital gain. The same can be applied to antique furniture or possessions in your family, which rot in the attic and are not used or not of emotional value to members of your family.
You can also create such assets yourself. For example, if you are good at social media, you can create multiple social media accounts on platforms such as Instagram, Youtube, even Facebook pages and offer them for sale. I recommend you research the demand before starting so that you can target a specific niche with your content. By knowing there are many up-and-coming real estate agents in your area, you can create a real estate blog, Facebook page and Instagram, and aim to grow an organic following in this niche. You can later offer to realtors to sell them your pages.
On paper, this digital product (i.e., brand, social media page or intellectual property) will likely be priced very insignificantly, but in reality, pages with an organic following of 50,000+, interested in real estate might be something worth coughing up a significant amount of money for.
The Article In Short
Becoming a millionaire is not something that happens overnight. But it is a possibility for nearly anyone, who is consistent, methodological and patient in their effort to generate wealth.
There are seven streams of income that research demonstrates are consistent amongst millionaire tax returns, with the majority of millionaires having upwards of three income streams. The research also challenges common misconceptions we have about millionaires. I argue that:
- Millionaires rarely rely solely on ‘passive’ income.
- They often have a type of employment, which obstructs them from being ‘their own boss.’
- They rarely become rich ‘overnight.’
Becoming a millionaire involves hard work, and you need to build more income streams.
Here is how you can start today:
- Don’t quit your job early. Stay at it until you really have to leave, as it will fund your other investments, as well as increase your wealth.
- Invest in stocks. Long-term, passively and consistently, as it will generate you compound interest.
- Start collecting rent. Through subletting a room in your property, or buying a share of a rental property, depending on what you can afford. Once you have enough saved up, you can buy a small rental property with good rental potential and use the rent to generate savings for other properties you buy in the future.
- Create a digital product. Based on your area of expertise and sell it to collect royalties each month. Use your imagination. This can be anything as complex as sewing, cooking, business or coding class for kids, high schoolers, or college students but also as effortless as photographs you have taken or music you have created if you have a gift in those areas.
- Start a business. Grow it on the side of your main employment through scheduling time in the week to work on it (e.g., 2–3 hours after work every weekday, or on the weekends). Consistently grow it to generate a consistent additional income.
- Save a set percentage from your income in a savings account and forget it exists. Allow yourself to collect savings interest.
- Sell appreciated assets. Research of highly in-demand niches, obtaining or creating products or services, and supplying them at a greater cost than their book value.
Finally, please consider my article as informational inspiration to help you build income streams, as opposed to professional or legal financial advice. Long-term investments are hard-work and can sometimes require expert planning.