How Many Different Income Streams Should You Have?

Spoiler alert: At Least Seven.

You can stop reading now.

Or can you? I suppose you should continue reading, because it’s a little more complicated than that. Passive Income MD is a master of multiple income streams, and this was his original post.

Let’s allow him to go into detail into what exactly constitutes seven or more income streams, and why income diversity is a key to building wealth.


How Many Income Streams Should You Have?

 

I talk a lot about having multiple streams of income. I believe it’s the most efficient way to build wealth–but I’m not the only one. Researchers have even pinpointed a statistic: millionaires, on average, have not just one, but seven streams of income.

Now, when I read that, being the critical thinker I am, a few questions came to mind.

First, is seven the magical number of income streams that turn you into a millionaire, or is it that the millionaire knows how important multiple streams of income are, and so begins to “collect” them?

Second, are those seven types of streams, or could those seven streams be in the same category (for example, real estate)?

Finally, do highly-paid professionals really need this many streams of income or should they just keep working hard in their given profession?

Unfortunately, I couldn’t find too much additional information online (trust me, I looked all over). However, from my own research, I’ve landed on a few ideas that certainly make the most sense. So let’s go back to my original questions:

 

multiple income streams

 

Do the Income Streams Make the Millionaire, or Is It the Other Way Around?

 

Well, the number seven may not be magical, but it does seem these concepts are two sides of the same coin. Yes, the streams may eventually make the millionaire, but it’s also true that the millionaire understands the importance of multiple income streams–without them, after all, he or she may never have broken the million dollar mark. So, he or she continues to increase their streams of income.

Are These Seven Individual Categories of Streams, or Are They All from the Same Category?

As with all investments, I believe that it makes the most sense to diversify your streams of income. That is, up to a point. If you’re finding a category that works for you, then go for it. Still, don’t put all of your eggs in one basket.

Yes, diversification is key. I’m talking about the whole picture here – not only the way you gain income and increase net worth, but also what you do with it. Smart people have learned that the best way to build wealth is to turn your active income into multiple passive income machines.

 

Should You Focus on Building More Streams of Income, or Is Your Profession the Top Priority?

 

some streams are best avoided.

Highly-paid professionals (like doctors) should definitely be looking into multiple streams of income. In fact, more than anyone, we are in the best position to accelerate our growth towards financial freedom. We’re able to earn the necessary capital and immediately throw that money into creating additional streams very quickly. We just have to be strategic about it.

Keep your expenses in check, and be disciplined about moving your earned income from your day jobs and straight into the money-making machines. There is a balance to be had here. You just have to figure out exactly where it is for you.

 

 

Different Streams of Income

 

If you’ve made it this far, hopefully we’re (at least somewhat) on the same page. And if so, you may be wondering about what these seven streams might actually consist of. Well, while there’s no perfect blueprint for what these income streams should be, here are some of the most common types of streams:

  • Earned Income – This is your day job and most people’s primary source of income. this one’s easy to understand and most people’s primary source of income. You trade your time for money.
  • Business Income  You own a business. You either make and sell something, or you provide a service.
  • Interest Income – This is income you make from lending your money out. This might mean a CD, P2P lending, real estate crowdfunding, funding fix-and-flip debt deals, or simply money in a savings account.
  • Dividend Income – This is money that’s distributed as a result of owning shares of a company.
  • Rental Income – You own something and you rent it out. Probably the most common is owning a rental property, such as a multifamily apartment building (renting apartments in exchange for monthly payments).
  • Capital Gains – This is money earned when you sell an investment, like stocks.
  • Royalties / Licensing – You create a product, idea, or process, and you let someone use it. They pay you a small fee every time they do.

If you’re curious about my own streams of income, I encourage you to check out my income report for an in-depth look. For now, though, I will tell you that I’m currently at twelve streams, beginning with my day job as an anesthesiologist, and ranging from an apartment building to this very blog.

 

 

Ultimately, having these multiple streams of income has proven to be invaluable to me–not only because of monetary value but because they allow me to live the life I want, and I feel I have a hedge against whatever the future might throw at me.

For the average millionaire, seven sources of income may be the sweet spot. But given my own experience, I believe that seven may not be enough.

How about you? How many sources of income do you have? Any desire to add more? If so, what are you doing about it?

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40 comments

  • I personally have six streams of income, excluding the royalty licensing, although I’m trying to think of a product that will allow me to license things down the road 🙂 So I have to agree that seven is probably the sweet spot.

    • DocB

      Great article. Could you reference specific ways to put savings acct money? I usually have 20-100k that I use to pay tuition and quarterlies but no good place to earn good interest.
      Keep up the good research and articles.

      • I have my cash in Ally’s 11-month no-penalty CD at 1.5% interest. The online savings account has been increased several times lately to 1.45%.

        Best,
        -PoF

      • Nathan

        I like the Goldman Sachs online savings account. They call it Marcus now for some reason. Anyways, it earns 1.5% APY and has an easy user interface with fast transfer times. Lots of folks out there competing for your business. Ally, Capital One, plus others.

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  • I have four types of income streams right now. Seven streams sounds like a good goal.

  • Dr. Joe

    I’ll take one good income stream rather than 7-11. If you are not earning enoug in your own profession, than try some side hustles . Most of the time you are better just working more. These side hustles work best if you are doing shift work like anesthesia ,not if you run a busy clinical practice . Concentrate on your main occupation.. I don’t think warren buffet, bill gates,jeff bezoar or bark sucker berg have many side hustles.

    • Alex Nieves

      But isn’t their side hustles how they use their original platform to reach out into other areas, industries, technologies etc and not stay to what originally got them there? I guess depends on definition of income stream.

    • I tend to agree, I make much more at my day job than I could at any side hustle. Although I’d say investments are essential alongside the main income – I’m far too lazy to do a buy to let, and a business sounds like a lot of risk as I’m not great at sales and marketing.

      So a healthy income & diversified investments it is for me.

  • I only have five if you count academic bonuses from my academic gig. If not, I’ll have four. One of them depending on when an invention of mine gets purchased.

    Trying to grow all the time, though. Slow and steady wins the race.

  • I like at least 5. Last year, I had 3, and am working on 2 more, definitely helps with emergencies or if there is anything unexpected that needs paying for!

  • This is a topic I never heard discussed when I was starting out. This should really help younger doctors if they take it to heart.
    I have a lot more than seven streams now. But I think just a few is fine. Especially if they are high-quality and don’t take much time. There was a time in my life when I only had three income streams, but I could have easily lived off just the passive income streams. The key is having at least a few. If a doctor has only 1 income stream, they could be hurting even with a high income. A dozen is likely too many for most since they don’t have the time to manage it properly. 3-5 would be great for most doctors – especially if you are a lumper and not a splitter.

  • Ah, the old chicken and the egg, eh? In my case, building up a few of the income streams helped me get part of the way to millionaire status, but as our cash flow continued to grow, it gave us opportunities to start to build other streams.

    I’m nailing 6 out of the 7 right now. Once we quit our jobs in a couple years though, we’ll be able to cross off capital gains as a stream as well.

    Royalties are one that I have from past books but it’s starting to slow down as they were technology books and you get a limited life out of those. So that’s the other thing I want to increase once I quit working.
    I’m going to get back to book writing again – it’s really fulfilling once you actually get to see the finished product and people enjoying it.

    — Jim

  • Six here. Not sure I’d worry much about picking up the seventh. It’d be cool to have the hat trick but the actual need is probably strongly correlated with the reliability of the other sources.

  • Great post! I did a quick count and came up with 8. There are others in the works.

    You’re right that diversification is really the goal here. What I do aim to do though is set goals around my key sources of income each year.

    Having read your post, it has inspired me to pay closer attention to my other sources of income and actively aim to grow them.

    Out of interest, with your 12 sources of income, How many are passive ?

  • Ryan

    I’m not sure that dividends and capital gains should be separate streams. They both come from the same place (investments) and the only difference is whether you choose to sell and realize the capital gains vs continuing to hold and having dividends accrue to you. It’s not like someone would realistically sell stocks they don’t need to sell just to realize ‘another’ income stream…

    Just my 2 cents…

    • I would tend to agree, although your capital gains could come from different types of assets. Flipping houses would be one example.

      But capital gains and dividends from stocks, ETFs and mutual funds are just part of the total return. I strongly prefer capital gains over dividends during my working years, as I explained and defended in the comments here.

      • Ryan

        God point, PoF. I was thinking of the streams in a bit different way- sources of income, not how they were taxed. Flipping houses to me is a business income, and yes they may be taxed as capital gains, but the income comes from the work you are putting in to flip the house. Point taken though. And i’m The same as you- not planning on realizing any capital gains until we FIRE in 15 years…

  • This is a terrific and timely post. As a high income professional, I ask myself every day whether I should bill another hour or spend that time building up my passive income streams. Lately my focus has been on the passive income side.

    I am currently at 6-8 streams including my profession, depending upon how you count (hard money real estate loans, mutual fund portfolio, dividend growth portfolio, high interest savings account, and three rental homes). I am happy with where I am, but I wish I had started 20 years ago!

    Thanks for the great post.

  • Timely post. This year one of my main focuses will be to increase my income streams. Got a few to go to get to 7!

  • Eight here, maybe nine someday if I ever decide to try to monetize my blog. And I guess it will be ten someday if social security is still solvent. Half are self employed gigs, half pure passive

  • I’m not sure what I can count as multiple sources of income. And I think it will be different in the future compared to now. But here goes…

    Current income streams (working years): My earned income, wife’s earned income, dividend income, interest income, earned points and miles from credit card spending, buying and selling things online. This list is in order of monetary value. Used to have rental income, but not anymore. Maybe we will again in the future. Don’t have capital gains income because we don’t need to sell investments before retiring

    Future income streams (post-retirement): My defined benefit pension, wife’s defined benefit pension, capital gains income from sold equities in taxable investments and and tax-advantaged accounts, likely future rental income, dividend income, interest income, possible alternative business income (like blog income), selling our accumulated “Stuff” online (we’re minimalists, so we either donate or sell our stuff).

    I think it’s great to have multiple income streams now and to plan to have more in the future as different opportunities arise! 🙂

  • Hmmmm… let’s see, I never counted.
    1. Day Job
    2. Locums
    3. Interest/dividend/cap gains
    4. Rental income
    5. Blogging business income
    Dang! That’s it! I need to go invent something or write a book?!? Great post… “Your choices today will either limit or expand your choices tomorrow.” – LB This hold true for wealth, health and relationships.
    😁

  • snowcanyon

    Challenging. I had just assumed I could eventually FIRE on my investments. Guess not. This is a challenge because I have not found any sort of side hustle I can tolerate.

    Ideas? Can you retire on investments alone? List of side hustles for the generally untalented?

  • I’m at 3 streams of income now but working on # 4. If I broke up my graphic design side hustle by vendor it’s actually 5 in that one alone, but I count it as one.

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  • I agree that personal and spousal income, even if both earned through employment, should be counted separately if they are truly independent of each other (like working at different companies in different industries). I also agree that dividends, capital gains, and interest income should probably be lumped together since they all come from the same underlying investment. BTW this is tyler’s dad here, not a 3 year old commenting

    • You’ve got mad typing skillz for a toddler.

      Wait… nevermind. Just finished reading the comment. 🙂 Two incomes are definitely separate income streams, especially when they come from different people. One person could have several earned income streams alone, but all are at risk to disability, death, etc… Adding another person earning income gives you additional income diversity.

      Cheers!
      -PoF

  • snowcanyon

    Distraught. I thought I could just invest in the market and pay off my house and retire. Thought side hustles etc were optional. Now I HAVE to have multiple income streams? So sad. This was not my vision.

    • If you have enough invested, the dividends and capital gains could fund your lifestyle. The 4% rule of thumb isn’t dead; it’s just one of several options.

      Cheers!
      -PoF

      • Exactly. The definition of number of income streams could be extended to same stream where several different categories of businesss contribute. If your dividend income comes from hundreds of companies, diversified across 10 sectors, would you consider your passive dividend income as 10 streams or simply as one stream? You can make a strong case for the former because the income, though lumped every month or quarter as your cash balance of brokerage account, is in reality coming from diverse businesses across multiple sectors. So, I would consider dividends and capital gains from a diversified equity portfolio as not one stream but as several, with different return and risk characteristics.

  • We have 8 streams now. I think that’s almost ideal. More and it will be difficult to keep track of.
    Little streams of income probably shouldn’t count. If it’s under $100/month with no prospect of growing, then it doesn’t mean very much. In that case, we have 5 solid streams.

  • snowcanyon

    More and more depressed.

    • Don’t be!

      Necessity is too strong a word. It gets clicks, but also scares people. Obviously, one income stream, if large enough, is all anyone actually needs. Would you feel secure with one income stream of $1,000,000 a year indefinitely? I sure would. Diversity is good, but not mandatory.

      Best,
      -PoF

  • hatton1

    Snowcanyon if your investment portfolio is large enough you do not need side hustles. I am giving up what at one time was my largest stream (ob/gyn) practice. I am replacing it with a trickle (my new unmonetized blog).http://doctoroffinancemd.com/2018/02/10/ . I have dividends, capital gains, interest which is a large stream now. I am close to the social security stream. I also have some deferred annuities I will start flowing soon.

  • I currently have streams of income. Once I get those growing more, I will work to expand that. I have to get some things automated which is taking a little longer than expected.

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