Creating wealth is certainly not an easy feat to accomplish and this explains why there exists very few wealthy individuals while the majority of the population are poor. While this may sound bleak, there are ways to learn how to grow your own wealth and achieve the financial success you want and I truly believe the following three pillars of wealth will take you where you want to go!
Pillar #1: Career Income
The first type of income that I will talk about is career income. Career income is the means by which most people make money and it is usually in form of a salary, which is a fixed amount of money paid by an employer to an employee. There are different types of careers that you can receive income from. You can have a career as an athlete or as a teacher. You can have a career in the medical field as a nurse or a doctor. You can also have a career in the legal field as a lawyer or paralegal. Needless to say the options for employment are endless.
Now, earning an income in this way is dependent on a few factors. The skills and level of education required for a career can affect how much money you will be paid. A medical doctor will typically earn more money than a writer will. The number of years that someone has worked contributes to the level of experience that they have, therefore, someone with more years of experience would generally be paid more money than a novice. The organization that you are working with can also determine how much you will earn in your career. You may earn more money if you work with a high-tech company in Silicon Valley than working for a similar tech company in a poor country.
While some people look down on the thought of working a 9 to 5 job, there are numerous benefits to earning an income in this way. For starters, it’s much easier to get a job and start making money than if you were to build a business and begin to turn a profit. Not to mention, that income is usually predictable if you are working on a fixed salary so every month, employees know how much they are expecting from their employers. This aspect is very handy when working with a budget. It’s easy to plan your finances and be able to identify how much you will save and invest every month when you employ this financial tool regularly. Finally, if you work at a job long enough, you will typically have some sort of pension to rely upon in retirement which will help fund your golden years.
Beyond compensation, another benefit of working in a career is that there are usually fixed working hours. Unless you are working in a field that expects you to be putting in more than the traditional 40 working hours a week then this form of income will offer you a nice amount of work life balance.
However, with all these several benefits, there are still some disadvantages to earning career income. The first disadvantage is that you are required to follow the direction of your superiors which may be easier to do for some people than others. The amount of money you can earn is also dependent upon how much your employer is willing to pay you and in most cases, raises typically aren’t much higher than normal cost of living increases.
Another disadvantage of career income is that it provides limited development scope. Some industries can limit the development of an employee. There are often fewer choices for career progression as some employees can only advance within a specific industry. There is also the problem of job security. We live in a very competitive world and employers can easily replace anyone. This means there is no job that is 100% secure.
Pillar #2: Investment Income
The second form of income that makes up the wealth triumvirate is investment income. Investment income is all money received from various investments such as stocks, real estate, or any other asset and is typically derived in the forms of interest payments, dividends, profits, and capital gains. Here’s a little bit about each one.
Interest is the income earned from investing your money for a particular period. The interest rate is usually specified before you invest. If the interest rate is 5% per annum and you have a total investment of $1,000, your interest after a year would be $50.
A dividend is an amount that a company pays to the shareholders from earned profits. Assuming a company decides to pay 50% of its earnings as a dividend and the earning is $4 per share. The amount that the company would pay as a dividend would be $2 per share. If you hold 500 shares of that company, the total dividend that you will get would be 500 multiplied by $2, or $1,000.
Capital gains is the money made from an increase in the value of an asset over time upon disposition. You can earn investment income in form of capital gains from any asset that can increase in value over time. Common examples include capital gains from estate property or a company’s share. Here’s an example.
If as an investor, you purchased $1,000 worth of shares at $5 per share, you would have a total of 200 shares. Assuming that after a few months, the value of the share increases to $8 per share and you sell all your shares, you would have received a total compensation of $1,600. Obviously, there is a difference of $600 between the amount you sold your shares for and the amount that you purchased them at and this $600 is what is referred to as your capital gain.
Like any other source of income, there are benefits and disadvantages of earning investment income. I will start with the benefits and the first benefit is that investment income is a good way to build wealth. Investment income is generally not an active source of income, which means that you do not have to trade your time for money. Not to mention, the interest, dividends, and capital gains can be reinvested to make more money over time.
Another benefit of investment income is that it is taxed differently from employment income. As we saw with capital gains, only a portion of your compensation is subjected to tax whereas when you earn employment income, tax is applied to the gross total.
Unfortunately, there are some disadvantages associated with this form of investment. For example, investment income is subject to market risks. In the same way you can make a ton of money from your investments, you can lose a lot of money too. If you invest in the stock market, for example, it is possible for the stock you invest in to perform poorly or even go bust.
Investment income is also unpredictable. You can make a lot of profit one month then barely make anything the next. Simply put, how much you make in investment income is dependent on how well your investments performs that month and this may become a serious challenge especially when it is your only source of income.
Pillar #3: Side Hustle Income
The last source of income is income from a side hustle. As the name implies, a side hustle is work you do on the side, typically in combination with your 9 to 5 job, to supplement your income. A side hustle is a great way to earn extra income which is why the rich use this method to boost their income.
Having a side hustle is becoming more popular today as more people are aware of its benefits. Some businesses today started as a side hustle and when the people who owned and operated such businesses saw it was becoming more profitable, they left their low-paying job to focus on it full time.
One good thing about a side hustle is that you don’t have to quit your current job to start a side hustle. You can build a side hustle around your skills or what you are passionate about. It is also an excellent way to have multiple sources of income. Your side hustle may provide enough money to sustain you if your main business should fail.
One thing people may not realize is that you need to learn how to manage your time well before you decide to start a side hustle because it is time-consuming and you may need to sacrifice a lot of your daily pleasures if you want to be successful. Luckily, if you are committed, the internet has made it easy to start a side hustle that you can do from the comfort of your home. Some common examples of side hustles are e-commerce, event planning, photography, teaching, web design, freelancing, and blogging.
The first benefit of a side hustle is that it is an additional source of income that you can pair with your current means of making money. Simply put, a side hustle helps you create secondary or tertiary streams of income and you don’t have to quit your current job to start. Another advantage is that your side hustle can be location independent if it’s online. You can monitor your business from anywhere in the world without spending extra money renting a space or travelling to visit a specific location.
A side hustle can also expose you to a lot of learning and new experiences. Going into a new industry can be terrifying but it can also be fun. You may need to learn about a new industry and meet new people doing so.
Moreover, a side hustle typically offers you the ability for flexible work. You can create your work schedule and work for as long as you want on your side hustle. A side hustle also allows you to do what you love. For example, if you love writing, you can create a side hustle writing books and publishing them on Amazon.
Before you get excited about a side hustle, there are some disadvantages to side hustles as well. A side hustle can be exhausting and stressful. You may have to work for longer hours than you do in your normal job if you want to be successful. This can lead to burnout and frustration.
A side hustle is not for everyone especially if you fail at being patient or lack the skills to sell yourself to others. Not to mention, like most endeavours, you always risk the potential for failure which will cost you money, time, and energy. In fact, I failed in multiple attempts at making a side hustle work but luckily I stuck with it and soon was able to replace my 9 to 5 income with the money I made online.
Once you have these three forms of income running at the same time, this is where the magic happens. By dramatically increasing your income while employing strict money management skills, you chances of becoming wealthy will increase tenfold!