The 8 Types Of Income You Should Know To Achieve Financial Freedom

September 16 is a date that bears a great significance to all Malaysians. While we remember  the long road and obstacles that we overcame as a nation to achieve this unity, what better way to celebrate it than by making your first move to financial independence.

Prudent financial spending may save you a few ringgit here and there, but having multiple streams of income is the more realistic approach to hit those big-ticket financial goals – like being financially independent. 

If you can establish multiple income streams you’ll have various cash flow sources coming in. You will be in a much better position to fulfill any financial endeavors even if one of your sources of income fails. 

Here are 8 types of income streams if you want to go down the road to being financially independent, while having just more than one type of income will get you started down the right path already.

1. Earned Income

The most basic form of income stream – it’s the income that we get in exchange for our time and effort like the salary from our jobs. It doesn’t matter if you’re doing it full time, part-time, or as a second job, as long as you’re pouring your time for money, it falls under this category. 

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Freelancing is a form of earned income. Nowadays, there are abundant freelancing jobs available on the internet, which you can do as a second job to supplement your income. If you don’t know where to begin, we have listed down some of the most common home-based jobs to propel yourself into the world of freelancing and remote work! Read it here!

2. Profit

An income that you can get by selling something for more than it cost you – a business basically. This is the second most common source of income and unlike earned income, the amount of money you’ll earn won’t heavily depend on your time and effort. 

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Running a business can indeed be financially promising and rewarding, but it also comes with a certain amount of financial risks. Before deciding on a business, make sure you’ve done your research and calculated the risks that come with it. Find out the real costs of starting a business before you dive in.

3. Interest Income

Interest income is the money that you earn by lending your money and charging interest or it could be from a savings account or time deposit.  This is a great source of passive income, and there’s a minimal risk especially for the savings and time deposit. 

This is a great source of passive income where your active involvement is not needed once the investment is done. Many doubt the seriousness of wealth ‘Interest Income’ can generate, but when combined with the power of compounding, and the fact that this is a true passive income with the least amount of risk, this can beat any of the first 2 sources of income generation hands down.

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You don’t need to invest hundreds of thousands up front to see a healthy return.  If you haven’t started investing, it is never too late to start by investing your first RM1,000.If you are just starting out on your investment journey, check out our online investment options here.

4. Dividend Income

Another source of passive income, it’s much like the interest income but better. You become a shareholder of a company and at the same time earn from the amount you’ve invested in them. The simplest way you can engage in this is through the local stock exchange.

What are the dividends?

Dividends are money you earn from publicly listed companies for buying a share of their company. It’s basically an interest you get for investing in a company via a broker.

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Bursa Malaysia is an easy-to-use trading platform for investors to buy and sell shares in the local stock exchange. Here’s our quick guide on how you can sign up and start earning dividend income! Don’t forget to factor in the fees and costs that come with investments.

5. Rental Income

From the word itself – rental. You earn by renting out an asset or property. It’s pretty self-explanatory. This income is clear cut and probably among the most dependable but the drawback is that you have to have a property or an asset that is rentable. You may need to shell out a good amount of money to obtain such valuable assets. 

Despite the investment that you need to have this kind of income, it’s worth noting that owning a property is already a good investment opportunity itself. You can choose to sell it if rental income doesn’t serve your purpose anymore.

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For starters, you need a property to have a rental income. If you don’t have a property yet but are in the market for one, read our property investment guide to learn more about how to find a property that’s a bang for your buck.

6. Capital gains

It’s the money that you earn for buying then selling an appreciating property or asset. It’s almost like a business, the difference is, you’re flipping a valuable asset (like properties, cars, or even a website) instead of low-cost products. 

This term is usually common in the investment market, but it isn’t just limited to mutual funds and the stock exchange. Apparently, it’s an act of investing in something for a lower price with the intent of selling it for a higher price. 

It can be anything – from stocks, vehicles, stamps, antiques, or even action figures, as long as it’s about generating more money from buying and selling. 

7. Royalty income

It’s about making money from using a concept, idea, or product that you own. You don’t need to do the heavy lifting for the business to earn money, you just lend them your intellectual property and you get paid for it. 

One good example of this are the famous fast-food chains like McDonald’s, or the convenience store 7-Eleven. The owners of these brands are paid by their franchisee for using their processes, their logo, and marketing, as well as their business name to earn money. 

Real talk

Royalty income is not for everyone. Having a business that’s worth franchising will really require extraordinary skills to pull off. This is not to say that it’s impossible to create a business model that is unique and repeatable, but it’s definitely not something that most people are capable of doing. 

Other than businesses, royalties also apply to the following media:

• An original music
• An original product
• Videos
• Images
• Books

If you’re a photography enthusiast or professional, you can earn royalties from your photos or videos through stock photo sites like Shutterstock. 

8. Residual income

This type of income is a form of passive income where a product you’ve created continues to generate money for you. With the advent of digital media today, residual income generating platforms are now more common than you think! They just need tremendous effort for you to get started. 

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Results don’t happen overnight or may never take off. However,here are some of the easiest ways to create opportunities to earn residual income:

• Selling a book 
• Selling a course
• Being an affiliate
• Starting a Youtube channel
• Launching a podcast

Realistically, most people can only manage to generate income in two to three ways.  That is still win as two or three is still more than just one income stream! You can find out more about the Three Types Of Income You Should Know.

This article was first published on iMoney.ph.