Notes on Income Streams
Incomes are earnings accruing to an individual or an organisation, while a stream is a flow of water in a channel or a small river.
With my basic definitions of income and stream, I can call an income stream as the process whereby earnings flow to an individual or an organisation. One of the primary reasons of our existence is to earn a decent and legal income in order to enjoy basic necessities of life and to play our roles as productive members of the society.
According to Robert Allen, not all streams of income are created equal. Robert identified two income streams; they are linear streams of income and residual streams of income.
Linear stream of income requires our presence at work and working every time in order to derive earnings. Linear stream of income can be in form of salary, consultancy fees, professional fees, income from contract execution etc. People who have linear stream of income are paid only once for their effort, they have to continue working or getting jobs in order to earn an income and when they do not show up for work they would not be paid.
Entrepreneurship or small businesses are very good if you have the temperament and the attitude required to succeed as a business owner, but an entrepreneur or business owner that needs to show up at his place of work at all times, is not better than the average salary earner because he does not have a control over his time.
Residual stream of income requires working hard once and your effort will unleash a steady flow of income for years and maybe to your unborn children. People with residual streams of income get paid over and over for efforts made many years ago.
Sources of residual income are rent, dividends, interest and royalties. My grandfather’s property at Apapa Lagos is still generating rental income more than 40 years after his death.
The starting point for a young graduate is to get a job or start a business, that will generate linear stream of income but one should be smart by creating residual stream of income by investing in real estate, money market instrument, shares or building world class businesses. If you are the creative type write books, produce albums, invent something and get a patent right in order to get residual income through royalties.
As earlier said an entrepreneur or business owner whose business cannot run effectively without the presence of the owner is operating at the linear income stream level. Such a person should create a process and system in his business that will enable the business to thrive without the presence of the owner. One of the reasons why we have very few businesses that have existed for 100 years and above in this part of the world is that most of the businesses lacked process and systems, which makes such businesses to die with their founders.
The secret of the wealthy is not that they have more money; but they have more time to pursue other profitable ventures because they have residual streams of income that does not require their presence. The residual streams of income generate funds for them even while they are sleeping or playing. No wonder you see some of them on Monday mornings playing golf at Ikeja Golf Club and also sealing deals while they are playing.
No matter how much you are paid as a salary earner, if you fail to invest and create residual streams of income for yourself, you may not be able to survive 5 years after a job loss, incapacitation or retirement. Maybe if some most of the lecturers in our Universities are aware of the secret of residual streams of income they will not ask government to increase the retirement age of University dons from 60 years to 65 years and then to 70 years.
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Memorable investment quotes
One of the greatest problems we have in Nigeria is how employees get their pension; their lot has become almost as difficult as the proverbial camel going through the eye of the needle. But some wise employees invested in shares during their working days, their dividends from shares are now sustaining them such people are ageing with grace and peace of mind.
Late Akintunde Asalu
Asalu was my late mentor, he opened my eyes to the wealth creating potentials of the stock market and real estate. He started creating residual income in 1963 at the age of 21; he was able to retire in 1979 at the age of 37.
