Millionaires who have generated their wealth have a keen understanding of money. They see it as a tool that can be leveraged to create more of itself and will work diligently to ensure every dollar is optimized.
Optimizing their income through passive means is not only easy but effective. The best part is that these secrets aren’t reserved for the uber-wealthy; anyone can do it. If you’re wondering how you can make your money earn you more money, we’ve collected the top ways millionaires generate passive income that you can do, too.
The smartest way millionaires build wealth
The best way millionaires become and stay millionaires is by using debt wisely. They’ll rarely carry debt from high-interest credit cards or spend frivolously. Instead, they’ll use debt to buy assets that accrue value over time, like education or real estate.
If you’re ready to become a millionaire and start building passive income streams, the first thing you’ll need to do is get rid of any old debt you have because it could take away what chance you have of moving up into a new class of earners. Consider using something like a debt consolidation loan or another streamlined strategy to help get yourself out from under your debt so that you can start creating wealth.
Interest, or more importantly compound interest, is a crucial tool millionaires use to increase their wealth without lifting a finger. If you’re able to sit on a high-yield savings account, you’ll begin to accrue compound interest which is just interest payments on the interest you’ve already received. It’s like getting a bonus on something that was already free.
Compound interest isn’t the only way millionaires will put their money to work. They’ll also offer personal loans through peer-to-peer lending sites or loan money to companies via bonds and notes and earn interest on those loans.
When investing in the stock market, some companies will offer a dividend, which is a small, regular payment made to investors every quarter or year as a method of profit-sharing. The amount of dividends you’ll receive is based on how many shares of stock you own and how well the company has done over the past year. When dividends are done right, they’re taxed as long-term capital gains, which lower their tax rate and leaves more net profit.
Capital gains are taxes paid on the sale of any investment. This can be stock, real estate, or anything else that accrues value over time. Capital gains work in two separate ways: short-term, which are taxed at a higher rate, and long-term, which are taxed at a lower rate.
This might not seem like a true passive income stream except when you think about how millionaires take advantage of lower tax opportunities to keep more of their money when they sell off assets. If you can hold onto an investment longer than one year, that investment will be considered a long-term capital gain and subject to a lower tax rate.
Many millionaires will diversify their income by investing in real estate. Some may sit on a property while they accrue equity, while others will accrue equity and receive revenue by renting the property out.
The level of passivity depends on how hands-on they stay with the tenants. Many millionaires who have multiple rental properties will simply pass off the maintenance and tenant support to a property management company that takes a cut of every rent payment. The millionaire earns less but also has less involvement and may see that as well worth the cost.
Royalties are the income generated through the sale of your intellectual property. This can be from creative works the millionaire has made themselves or products that a creator has licensed for the millionaire to sell. Thanks to the internet, creating passive royalties is something everyone can do with self-publishing, digital art licensing, etc.
Multiple online income streams
The majority of millionaires are entrepreneurs who have built successful companies. While it’s not the case for everyone, many have made their fortunes by creating multiple online businesses that now generate an income passively. These can be anything from product-based companies that drop-ship, to evergreen course platforms. Millionaires understand they have a skill set that can be leveraged and will do so, especially if it means someone else handles the nitty-gritty.
The bottom line
If you want to become a millionaire, you need to look at ways to diversify your finances. Get rid of old debt and start pursuing methods to make your assets (money, skills, etc.) work for you.