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How Many Sources of Income Do You Have?

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How many sources of income do you have?The internet said a typical millionaire has 7 sources of income. I don’t know if this is accurate, but I’m sure wealthy people have more than one source of income. Most of us start off with just one source of income – earned income. That’s how we start our working life. We go to school, get a job, and work hard to get promotions. I still remember the exuberant feeling I got when I saw my first real paycheck. It’s a great thing to work and earn some money. However, to become wealthy, you need to figure out how to generate income when you’re not actively working. That’s what wealthy people do. They let
their investments work for them instead of working for money.

The US tax return filing deadline is coming up quickly and it is a great time to review your income streams since you’ll have to do your taxes anyway. The IRS conveniently categorizes the various types of income you have. Let’s see what we had in 2015.

Multiple sources of income

1. Wage Income

This is the main source of income for most people. Mrs. RB40 is still working and it is a major source of income for our household. In 2015, I also had W2 income from the High-Tech antitrust settlement. I’m not sure why it’s earned income. I guess that settlement is related to my former employer so part of it counts as wage.

2. Business Income

I make some income from Retire by 40. Right now, all of the income is from advertising. If you’re curious about my online income, you can sign up for our monthly newsletter and see the break down. I’m not exactly sure how I would categorize my online income, though. If I stop blogging, the income will continue, but I’m sure it would decrease over time. I guess blogging income is 50% active and 50% passive at this point.

3. Interest Income

We had a very small interest income from our saving and reward checking accounts. The rate is low and I tend to invest rather than keep a lot of cash around. I also have some income from my P2P lending account at Prosper.com. The ROI of my Prosper account is much better than the rate at my bank, around 8%. Lastly, we have some interest income from our bond funds, but these are all in our retirement account so they are not taxed at this time.

4. Rental Income

Currently we have a duplex and a condo that we rent out. I manage the properties myself so it does take a little time. The rental properties are mostly passive, but I have to do some work occasionally. Recently, I had a tree trimming company out to trim the maple in the back and remove some dead arborvitaes along the fence. We decided to replace the arborvitaes with potted bamboos to help screen the property. So this past weekend, we split a pot of bamboo and planted some mint in the garden. That one sentence sounded easy, but it took us 3 hours to do. We carted an old pot of bamboo from our balcony and it was a struggle. That thing must have weighed 100 lbs. Anyway, we’re willing to put some work into the duplex because we plan to relocate there at some point. Also, the rental income shows up as negative income in our tax due to depreciation. That’s a nice side benefit to being a landlord.

5. Capital Gain and Dividend Income

I love my dividend portfolio. We managed to stay in the 15% bracket for 2015 so we did not have to pay tax on our dividend income. This is my favorite source of income, by far.

6. MISC Income

Another part of the high-tech antitrust settlement is in the 1099-MISC category. I’m not really sure why. The MISC income usually covers income from working as an independent contractor. Some of our online income is reported with the 1099-MISC.

 7* Sold Used Personal Items

Mrs. RB40 was in charge of selling used personal items and she sold a few things in 2015. We’re covered for tax because you don’t have to report it to the IRS if you sold them for less than the purchase price.

How many sources of income do you have?

Those are the different sources of income for our household in 2015. It’s good to have a solid earned income, but you need investment income to become wealthy. The key is to save a significant percentage of your income and invest consistenly. This will create different streams of investment income which will compound over time. If you make a lot of earned income, but don’t have much investment income, then there might be a problem. This probably means you spend most of it and aren’t investing enough. That’s not good because earned income do not last. We all get old sometime and you can’t work forever.

Our most significant source of income is Mrs. RB40’s earned income, but that will change when she retires in a few years. Luckily, our expenses are at a reasonable level and we don’t need to replace her whole income to keep the same lifestyle. For 2015, our other sources of income just about covered our cost of living. The high-tech antitrust settlement gave us a shove to get over the finish line. That’s just a one off, though. I’m not too worried because there are other ways to generate some income to make up for Mrs. RB40’s paychecks. Here are some of them.

  • Retirement plan withdrawal – Here are 4 ways to avoid the 10% early withdrawal penalty.
  • Social security benefit – This one is a few years off, but I think it will still be there when we turn 65.
  • Side hustles – Once RB40Jr. heads off to kindergarten, I will be able to side hustle more. I’ve been turning down paid surveys because I can’t attend at the specified time.
  • Part time income – Mrs. RB40 might work part time or perhaps start a hobby business.
  • Other residual income – Write a book?

Do you have multiple sources of income? What are some of them?

Personal Capital is a great site to help keep track of your income and expenses. Check them out if you have many streams of income and a complicated portfolio. They are very useful and I log in almost everyday to check my finance. You can sign up with Personal Capital through this link.

Disclosure: There are some affiliate links in this article and we may receive a referral fee if you make a purchase through these links.

Image by Fil.Al

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{ 58 comments… add one }

  • Eva @ Girl Counting Pennies March 28, 2016, 4:23 am

    My most favourite source of income that I receive on a monthly basis is income from my two rental properties. There is still a small mortgage on one of the apartments that will be paid out in a few years’ time but overall it’s pretty good money for something that does not require much of my time at all!

    • retirebyforty March 28, 2016, 10:19 am

      That’s great! I love the rental income too, but sometime it’s a pain because maintenance happens. Someday we’ll get a good property manager so it will be completely hand off. 🙂

  • Lindsay March 28, 2016, 4:46 am

    I’d like to set up some more passive income streams as well. I’m really interested in investing in rental properties, but I’m having a hell of a time saving up to get started! I know there’s ways to do it cheap (or free), but I’m not really comfortable with them.

    Right now, I’ve got my day job, some index funds, a small income from my blog (about a penny a day so far – ha!), and some knitting patterns I designed and have for sale at various sites around the internet (not surprisingly, that doesn’t bring in much either). Eventually I’d like to write an ebook, although I have no idea what the topic would be yet. I’ll keep plugging away and hopefully it’ll become clearer in the future!

    • retirebyforty March 28, 2016, 10:48 am

      My suggestion is to move and rent out your old home. It’s a good way to start if you’re ready to move anyway. If you don’t want to move, then I don’t know. 🙂 Maybe just keep an eye out for a good deal. It’s great that you have income from other sources. They are small now, but I’m sure you can grow them if you put more time into them. It’s a good experience.

  • JC @ Passive-Income-Pursuit March 28, 2016, 5:16 am

    We currently have 4 sources that are sustainable. W2 income, interest income, dividend income and blogging. Of course only 2 of those are passive and aren’t enough to support our lifestyle, yet. One day! My wife is also working on building up a side job and I’m looking for ways to boost up my own side hustle too. The next big income source I’d like to add to the mix would be a couple rental properties but #1 is likely still several years away from being joined into the mix.

    Having multiple income source is crucial at any stage of life because you never know when one of them could disappear. If you rely on just one income you’d be hurting big time but with multiple sources you aren’t as exposed as someone with just one. It’s all about building layers of redundancy into the equation.

    • retirebyforty March 28, 2016, 10:50 am

      Good luck with your rental plan. It’s a proven way to build wealth. Everyone should try it to see if they can be a good landlord. Blogging can be a lot of work. It’s not really passive, but it’s a good hobby income.

  • PhysicianOnFIRE March 28, 2016, 5:18 am

    Another source of income (or at least revenue) can be selling things you no longer use. When we go through our closets and drawers, I tend to find a lot I can do without. Some goes to Goodwill / Salvation army / Habitat Restore (tax deduction = income), some is resold on Amazon or eBay, some goes to the trash. I’m not sure if reselling something you paid more for should really count as income, but it’s money in the door, or less money out as is the case with donations.

    I’ve currently got 3 sources of income, or 4 if you count reselling: employment (substantial), investment (growing and reinvested), and blog (minimal but with potential).

    • retirebyforty March 28, 2016, 10:51 am

      I was thinking about that, but didn’t add it. I put it in the main post now. We sold a few things last year and it’s a good way to recover some money. You don’t have to pay tax if you sold it for less than what you paid for.

  • Jim @ Route To Retire March 28, 2016, 5:29 am

    That’s funny, I was just thinking about this last night and again this morning on my way in to work. I currently meet 5 of those sources, but my percentage is way too high on the wage income.

    I need to work on building up the other streams so I can carry us over the first 5 years after I quit my job during the Roth IRA Conversion Ladder process. I’m hoping to get another couple of multi-family rental properties for cash flow, but that won’t be enough to cover everything while they still have mortgages on them.

    The other portion I’m hoping to work on is building up more dividend stocks. Right now I just have them reinvesting, but eventually I’d plan on getting the payouts. I like how you’ve been able to keep you’re bracket low enough to not pay taxes on them.

    I formed a publishing company a number of years ago and have published a couple of technical books I’ve written since then. I doubled my goal for copies sold, but it’s definitely not enough income to retire on. Writing books is a tough area. You’ll definitely be proud of the accomplishment and seeing the sales happen around the world, but it’s tough to make it really profitable.

    — Jim

    Also, just a heads up, your heading for “Multiple sources of income” is missing the “e” at the end of the line.

    • retirebyforty March 28, 2016, 10:54 am

      You could also work part time. Consulting or something like that would be a good way to bridge the 5 year gap. Good luck with your other streams. Keep at it and they will grow. A book would be a nice accomplishment, but I hear the income is minimal. I guess anyone could get lucky and make it big.
      Thanks for the correction. I fixed it.

      • Jim March 28, 2016, 11:20 am

        Haha, as straight-forward of a suggestion working part-time is, I never really even thought of that! That really might just be the best solution to bridge the gap. Thanks for that!

        — Jim

  • Ty @ Get Rich Quickish March 28, 2016, 6:54 am

    Thought provoking post, thanks for writing it. I’ve got 5 regular sources of income, but alas only one that’s significant.

    Working to make them ALL significant in a quickish amount of time.

    • retirebyforty March 28, 2016, 10:54 am

      Keep at it. It takes time to grow.

  • Mike Drak March 28, 2016, 7:05 am

    After many years I finally achieved FI and my dividend portfolio basically covers my living expenses. My wife still works in wealth management and I also help her grow her client base. Just about to release a book that I co-authored called Victory Lap Retirement which will be a new source of income. Also plan on doing public speaking and seminars in support of the book which will be an additional new source of income. I will also be creating a Victory Lap website and blog to help sell the book and hopefully over time create a VL community. I will not advertise as I do not want to commit to when I have to produce a blog. I worked hard to get FI and I don’t want to give my freedom back by forcing myself into a set schedule if that makes sense. So basically I will end up with 5 sources of income including ss and most of them are aligned with my passion play. Not a bad way to go out.

    • retirebyforty March 28, 2016, 10:55 am

      Good luck with the book. Don’t forget to send me a review copy. 🙂
      Enjoy your FI.

      • Mike Drak March 28, 2016, 12:11 pm

        I will get an electronic review copy to you in the next month or so. Just reviewed the book cover and love it but of course I’m biased. you do great work Joe and your site helps many people. We mention you in the book, hope you like it!

    • JasonInVancouver March 29, 2016, 9:57 am

      Heard about your Victory Lap book through one of Jonathan Chevreau’s social media channels (I forget which one). Looking forward to the book, Mike.

      • Mike Drak March 29, 2016, 1:01 pm

        Thanks Jason, you made my day!

  • Brian - Rental Mindset March 28, 2016, 7:15 am

    Great question, definitely something people should focus on. We have: my business, my fiancé’s W2, and our 2 rental properties as the main streams of income. Interest is really a drop of income so I won’t consider it. But planning to add more properties and a new business (Rental Mindset) in the next couple years.

    • retirebyforty March 28, 2016, 10:56 am

      Great job with your rental properties. It is a proven way to build wealth and the tax code is very favorable to real estate investor. I’m sure you will do very well in the future.

  • nicoleandmaggie March 28, 2016, 8:03 am

    Wage income from two jobs, capital gains (unrealized) and dividends. Of course, pretty much all our sources of income are pro-cyclical.

    • retirebyforty March 28, 2016, 10:57 am

      I know you enjoy your job so those are great stream of income. Also, I’m sure you can find a different job if you need to. Your situation looks very secure.

      • nicoleandmaggie March 28, 2016, 4:53 pm

        I actually can’t get fired unless I do something truly horrible (or the state legislature gets rid of tenure). But I also have a spouse who likes to work and depending on how things change, I may need to leave my job for his career. So there are different levels of security. I’m never worried about us not having an income, but I do worry about being trapped in a specific job (or one of us being trapped with no job).

  • Dividend Growth Investor March 28, 2016, 8:49 am

    Joe,

    Thank you for writing this article:

    I have several streams of income:

    1) Dividends mostly from 50 – 60 companies
    2) W2 Income – one client. Allows me to put money in 401K
    3) 1099 consulting Income – several streams there
    4) Interest Income

    I have typically plowed all of my excess from streams 2), 3) and 4) into stream 1). I am interested in learning more about real estate investing.

    • retirebyforty March 28, 2016, 10:58 am

      I love dividend income. It’s very passive and keeps growing every year. Rental income probably is better in the long run, but it takes more work.

  • Michael @ Financially Alert March 28, 2016, 9:13 am

    Great question, Joe. Different sources of income for our household include:

    1. Earned income (wife)
    2. Dividend income (equities)
    3. Bank interest income (savings)
    4. Peer-to-peer lending income (lending club)
    5. Rental income (single family homes)
    6. Rental income (apartment/commercial)
    7. Business income (consulting/website)
    8. Debt/equity investment income (realtyshares)

    There are of course varying amounts that come from these different sources, but every little bit helps. 🙂

    • retirebyforty March 28, 2016, 10:59 am

      That’s great! I’d say 5 and 6 are the same thing. 🙂
      How is realtyshares? Is it a good investment? That sounds interesting to me.

      • Michael @ Financially Alert March 29, 2016, 9:35 pm

        Yeah, those are probably the same. 🙂

        Realtyshares is pretty cool. It allows you invest alongside other real estate investors in smaller increments than traditional syndicated investments. You typically invest in debt (tax liens) or equity (take a small ownership) in exchange for putting up capital. Rates can vary from 6% all the way to 19%. There are certainly risks, but that’s what’s great about it… you can spread it across several investments. I’ve done about a dozen deals with them over the past 2 years and so far so good!

        • retirebyforty March 30, 2016, 10:53 am

          Nice, I will check them out. The barrier of entry is pretty low at $5,000.

  • Andrew March 28, 2016, 9:14 am

    I really need to add more streams of income and especially the passive type. I mainly have w-2 income like most people. I purchased a rental income a little less than a year ago but there have been some hiccups so I don’t think there’s much income from that as of now. I’d definitely be interested in some side income but it’s tough with a little one…you know how it is! Will be interested if there are legit paid survey sites since you mentioned that you would do that when junior starts school.

    • retirebyforty March 28, 2016, 11:01 am

      Keep at it with the rental. It will get better over time. Hiccups are pretty normal when you start out. Well, we still have occasional hiccups…
      You’re right. It’s tough with the little one. That’s why I don’t worry too much about side income right now. There will be time when he’s more independent and we’re doing okay.

  • Eric Bowlin March 28, 2016, 9:41 am

    Wages are the highest tax income source in the United States. Investment income is the lowest. The government is trying to tell you to earn passive income instead of working for it!

    Truly rich people invest in real estate, business, debt, insurance, or whatever else.

    I earn all my money in real estate.

  • Sylvia @Professional Girl on the Go March 28, 2016, 10:04 am

    Right now I am working with two income streams but I’m trying to increase it to four by the end of the year. My main goal is to have at least 5 by the time I am 30.

    • retirebyforty March 28, 2016, 4:15 pm

      Good luck! It’s nice to diversify your income, but try to keep them mostly passive.

  • Michelle March 28, 2016, 11:39 am

    We are working on having more sources of income. All of our income comes from our online business, and while that is somewhat diversified, I would like to do better.

    • retirebyforty March 28, 2016, 3:56 pm

      You really need to invest some money elsewhere. Business is good now, but you never know what it’s going to be like in a few years. You’re doing really well right now, thought. Great job.

  • amber tree March 28, 2016, 11:42 am

    Multiple sources of income is high on our todo, we are not there yet. We actually reduced one source by selling our rental.
    WE now start looking again at multiple sources next to our main jobs. Dividend income is a low priority for now, given the high tax we pay. Another one is options trading. After one year, I will be able to evaluate what it could mean for me. I am actively looking at a rental again. It is hard to find a cash flow positive unit.

    • retirebyforty March 28, 2016, 3:57 pm

      Good luck with the options trading. I have no experience with that. It can be tough to find a positive cash flow rental. It really depends where you live. You could buy out of state.

  • Tracy @ Financial Nirvana Mama March 28, 2016, 12:02 pm

    Hmm…not sure if I have 7 sources…
    Lets count them:
    Semi – Passive:
    – I’d argue rental properties has at least three sources (cashflow, mortgage paydown and appreciation) than that is almost half.

    Passive:
    – P2P lending
    – Equity Investments for mortgages that pay monthly interest payments now
    – Stock (pay later with minimal dividends)
    – RESPs in guaranteed investment certificates (pay later)

    Active:
    – Small business: independent Consultant (fulltime)
    – Blog
    – User testing on websites (money is funnelled back to pay for blog expenses)

    I guess I have seven. Cool!!

    My kids:
    – I help them sell their old toys (with their permission) and they physically get the money for their piggy bank

    I always thought having one income source or only two (if you are a couple) is too risky. Having more than a few helps me sleep at night. Life is too unpredictable to rely on one source of income.

    • retirebyforty March 28, 2016, 3:59 pm

      That’s great! I like how you work with your kids and teach them how to save. I’ll have to do that when my kid is older.

  • Mr. Tako @ Mr. Tako Escapes March 28, 2016, 2:18 pm

    We have several sources of income.

    1. W2 Wage Income
    2. Dividends
    3. Interest from Preferred Shares
    4. A small amount of blog income.
    5. Occasional sales from Mr. Tako’s Etsy store.

    Once the kids are grown, I might consider a rental, but it would have to be in a very different area. Prices are too high here.

    • retirebyforty March 28, 2016, 4:03 pm

      Etsy sounds interesting. Mrs. RB40 might be able to do something there. Yeah, rental is hard when the price is too high. The appreciation is really nice, though. Seattle area price has gone through the roof in the last 10 years.

  • Our Next Life March 28, 2016, 3:09 pm

    Right now we have five, but we’ll probably cut that down to four at ER next year. Current: W-2, business income, rental income, interest on personal loan plus accounts, dividends and cap gains. Future: subtract W-2 for the most part, not counting little “fun work” projects. If we were looking to live the high life, we might aim for the millionaire’s seven sources, but we feel like our four sources will let us live very comfortably with plenty of contingency plans in place. 🙂

    • retirebyforty March 28, 2016, 4:14 pm

      Sounds great! Good luck in 2017. I missed your blog on my Early Retirement Blogs list, but I added it now. Good stuff.

  • beth March 28, 2016, 4:18 pm

    Why didn’t you split the heavy pot of bamboo where it sat and carry it to it’s new location in smaller more manageable segments? Weren’t you going to split it in to smaller pieces when you got to the rental anyway?

    I know that replanting bamboo was not the point of this article but that really jumped out at me. I work full time and stand all day at my health care job and I currently earn $100 per month in dividends. I am working hard to get to $200 per month in dividends by the end of 2016.

    • retirebyforty March 28, 2016, 4:27 pm

      There is no work space at our condo. We live in a high-rise. The balcony is very small and splitting bamboo is a dirty job. That’s a good idea, though. Good luck with your dividend income. It seems small now, but it will increase.

  • PatientWealthBuilder March 28, 2016, 4:27 pm

    I was just curious what your thought was on actively managing your properties vs. getting a property manager? I recently started using a property manager and it has been a wonderful experience. It’s like there is now complete radio silence from the property since everything goes through the manager. I used to spend tons of time driving to it and showing it to prospective renters, doing background checks, doing maintenance, etc. It was amazing how much of a drain it was just thinking about what might go wrong. Now with a property manager I just get a .pdf statement in my e-mail and the rent gets deposited in my account like magic! I’m a big fan of property managers and think they are worth twice what I pay them.

    • retirebyforty March 28, 2016, 4:44 pm

      We had a few property managers, but I wasn’t happy with their work. They didn’t really paid much attention to our properties and the tenant had a tendency to do whatever they wanted to. One tenant built a tree house at our old 4-plex. We didn’t find out about it until the neighbor sent a letter of complaint. If you have a good property manager, then keep them!
      I don’t mind managing our 3 units right now. It’s just enough for me to handle. There are some problems, but not a huge amount. At some point, I will try to find a good property manager.

  • PatientWealthBuilder March 28, 2016, 4:56 pm

    Good point! I was just talking to an investor this weekend who said his property manager wasn’t “sharp” and let things slide. He is thinking about getting a new one. Sometimes it is easier to manage the property than the property manager.

  • JasonInVancouver March 29, 2016, 5:53 pm

    We’re pretty vanilla in our current income streams: Wages, Interest, and Investments underlined by the brute force method of save and invest. I’d love to add some additional streams but we’re too apathetic. And real estate really isn’t our thing though it seems to run rampant in other parts of our extended family.

    I see our income streams evolving in two phases during retirement because the missus will unfortunately have to work longer to secure the benefits of her DB pension. The first phase will be a bit of a transition period with my wages being replaced by passive investment income and interest income (GIC ladder for predictability and safety) with the missus still providing wage income. I’d love to find a fun and flexible encore career though that might provide some side wage income. Phase two would primarily be a mix of investment income, interest income, and DB pension income with the standard Canadian social security benefits providing an additional margin of safety.

    • retirebyforty March 30, 2016, 10:53 am

      It’s nice to have 2,3, or 4 phases. We have different phases too. Right now, Mrs. RB40 is still working. Once she retires, then we’ll rely on my online income, rental income, and our taxable accounts for at least 5 years while we build our Roth IRA ladder. After that, it will be a mixture of online income, taxable account, and Roth withdrawal. Until we’re qualified for social security benefit.

  • Getting To One Million March 30, 2016, 3:13 pm

    I have 2 sources which are my job and interest from CDs. Please see my blog where I list my networth, ways I save, and my budget.

  • Dividendsdownunder April 1, 2016, 4:17 am

    Hey RB, if you can split these into the following:

    1. Wage Income.

    2. Interest

    3. Dividends

    4. Selling Stuff

    5. Online surveys

    (6 Hopefully we’ll have some blogging income soon 🙂 )

    I think numbering at 7 is probably fairly accurate for millionaires, you can get income a bunch of different ways. It’s very reassuring to have multiple sources that can help you gain wealth as well as being a back stop.

    Tristan

  • The Finance Games April 9, 2016, 7:50 am

    I was so excited when I opened a higher interest savings account and I started getting ‘real’ passive income. Instead of 5 cents from my bad savings account, now I get $10 a month in interest for just keeping my emergency fund full! If I saw a nickel on the street, I’d pick it up but it’s not too exciting. If I saw $10 laying on the street and picked it up, it would make my week! The account is like finding that $10 on the ground every month 😉

    I’m working on other types of passive income. Mostly working on blogging, as well as exploring other side hustles. I’ve sold some of my old items on eBay, but that’s not infinite – there’s only so much stuff I have!

    One of the most lucrative side hustles for me (since I live in the Bay Area) is phone and on-site interviews for startups looking to test out products. It’s consistently over a dollar per minute, and I find several of these opportunities a week!

  • Larry April 11, 2016, 7:03 am

    Wow you have so many income sources. I only have one main source – my wage income. I also earn some money with trading and I plan to do property rentals in the future. LN

  • Andy April 26, 2016, 7:53 am

    I only have two ( if i counted the business as separately then i could have 7 just in the business) plus one rental.
    It may soon go to just one since i am trying to sell the business. If i do sell it this year i be over 1 million dollar richer at 28 yr old. I know for sure that i will get to 3 to 5 million in 20 years from now by keep addind alowly. But if i sell the business then it would be a big jump… at least it would have taken me only 7 years for 1 million, they say the second comes easier right?

    • retirebyforty April 26, 2016, 10:06 am

      Wow, you are doing very well. Yes, the 2nd million is much easier. You have a base that you can build on. Good luck!

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