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Thursday, May 26, 2022

Here Are Income Streams That Can Help You Achieve Financial Stability

  • Robert Kiyosaki, an American businessman and author states that the key to financial freedom and great wealth is a person’s ability or skill to convert earned income into passive income and/or portfolio income. 

    The path to financial stability demands discipline and wealth creation requires a long-term strategy. 

    According to the Kenya National Bureau of Statistics (KNBS) in a survey released in December 2021, the number of Kenyans earning Ksh100,000 and above had dropped by 4861 earners in the formal sector. The bureau highlighted that three-quarters of Kenyans earn below Ksh50,000.

    Diversifying your investment is the key to creating more income streams. It is important to have a checklist of income streams that will enable you to weather a financial storm.

    File image of Kenyan banknotes

    When it comes to income streams there is a passive or active income. A passive income is not directly tied to the work one does while active income is directly tied to work and payment.

    Earned income

    This is the primary source of income paid for your skills and time. For most people, it is the starting point after completing graduation.

    Earned income is limiting and presents lots of uncertainty based on career growth, market risks and political risks.

    Dividend income

    This is the income one earns that is distributed to owners of shares in a company. Dividend income will vary based on the return of the company. It is important to note that dividends are paid annually to investors. 

    In Kenya, individuals who choose to invest in companies are subjected to a withholding tax of 5 per cent on their dividends.

    Royalty income

    It is well known that necessity is the mother of invention. Individuals who invent an idea, product, or process to a final product will get a fee whenever someone uses it.

    Creative individuals need to understand intellectual property rules that protect the individual from being swindled.

    Interest income

    An individual can earn a passive income by utilizing savings schemes. By investing in savings accounts, one can gain extra income through compound interest.

    Government bonds have been an avenue where many investors generate interest income. The bonds such as infrastructure bonds offer an interest of 13 per cent and the returns are tax-exempt but can only be redeemed after a certain period.

    Profit income

    Individuals who own a business will earn income when they make and sell a good or service. Their incomes will attract a tax of 30 per cent. The taxes on incomes will vary since they are some companies that pay a less corporate tax per the agreements on public-private partnerships.

    It is important to be alert to tax incentives when the government seeks to develop some sectors of the economy.

    Rental income

    This is the income earned from properties that have been rented out, such as apartment buildings. The amount of rent is determined by the one per cent rule in building economics.

    The one per cent rule is the per cent of all costs involved in building the apartment. It is used with the estimation that in ten years the landlord will have covered the initial costs incurred. The landlord rate is set at 10 per cent. by the taxman. 

    Capital gains

    This is the income gained when you sell your investment like stocks, physical assets like buildings. When one sells the stocks or assets the returns will attract a 15 per cent from the Kenya Revenue Authority(KRA)

    An elaborate representation of investment and growth
    An elaborate representation of investment and growth.

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