It’s no secret that life is getting a lot more expensive. In the last twelve months alone prices have skyrocketed. Inflation in the U.S. is the highest it’s been in 40 years and significantly on the rise in most countries. Add this to the effect that COVID has on people’s finances (as well as job security and a mental toll) and it’s clear that building additional income streams is needed now!
As we’ve mentioned in previous articles (insert income stream post) a lot of people only have one income stream, their ability to earn an income. If this income stream is gone then it gets very hard to live, to put food on the table, to save, to live life. A recent CNBC article states that a recent study shows 64% of Americans are now living pay check to pay check”!
So we know why multiple income streams are needed, how do we go about acquiring or building these?
What is an income stream?
An income stream is essentially a way in which you receive regular income. For most people their first (and sometimes only) income stream is a job. With some savings or experience these income streams can expand into shares or property, or even your own business. We can break these income streams down to passive and active.
An example of an active income stream would be your job where you earn an income as a result of your labor. Regarding passive income streams, an example would be a pension or an investment such as a stock or rental property.
Obviously the preference would be passive income streams or at least income streams that require limited work by you!
When to start building your income streams
Now that we can see the benefits of having multiple income streams (such as in the case of losing your job or becoming to sick or injured to work), when should you start building these income streams?
Today or as soon as possible particularly if you don’t have the money to invest in a passive income stream!
The quicker you ‘emergency proof your household income‘ (including insuring your current personal exertion income if you can afford this), the quicker your path to financial independence will become. The quicker you will be living your life on your terms, a life where you are not being dictated to by your calendar or by an ungrateful boss or employer. Your life your way should always be the aim!
What to look for in an income stream
The more passive the income stream the more you will have to invest to acquire, either in money or in time (to build up the equivalent passive income amount that you desire). So for most people you are starting at the bottom of the above pyramid. That’s why you want to start working towards your passive income streams as early as you can.
As can be seen in the above info graphic, the aim for your income stream is 100% pure passive income with you having to use little to no time, labor or resources (aside from an initial period of work or an initial investment) to receive this income stream. The main drawback here is that most people don’t have access to the money required (particularly at a younger age) to invest into an income stream that will (or at least at the beginning of their wealth creation journey).
Types of income streams
Your job
Pros – It’s regular and in most cases the more educated and time you put in allows an increase in income.
Cons – It’s not passive, you are at the whims of your employer and if they wish to replace you with another (employment regulations aside) they can. If the economy goes bad and layoffs are on the horizon, your job (and income) is at risk.
2nd job
Pros – It’s an additional income stream
Cons – It’s really not passive and eats into your free time
Side Hustle (e.g. selling unused household items, earning an income while freelancing)
Pros – Is a great way to earn additional income selling unused goods or using skills you have acquired along your journey. Can also be a great way to build a business to replace your main job income.
Cons – Likely to be highly time resources and little in income in the beginning.
Shares (Listed)
Pros – Great quality income stream (providing the shares you select pay dividends)
Cons – Can fluctuate as economic conditions get better or worse and as shares are listed the values can drop significantly in a bear market.
Investment property (this doesn’t include your principal place of income as it usually doesn’t derive an income)
Pros – A property in the right area can provide great passive income
Cons – In most cases you will need to outlay a large amount of capital for your income stream. Income stream dependent on tenants and property can take some upkeep.
Listed Property
Pros – A great way to access property without having to cover the large purchase prices usually associated with a property purchase. You also don’t need to find or deal with tenants, upkeep, etc.).
Cons – Income can be subject to economic conditions (i.e. owning office property during the early stages of COVID severely dented your income from the investment).
Your own business (bricks and mortar)
Pros – A great way to build an income (and asset) and one in which you can hire staff to run the business. You can start a business with little to no capital or you can buy an existing business if you have the capital.
Cons – Reliant on good staff (particularly if you are looking for passive income) and income can fluctuate relative to economic conditions. Large capital outlay require if you are looking for a business providing a substantial income stream.
Your own online business
Pros – A great way to build an income (and asset) and one in which you can hire staff (or outsource jobs) to run the business. Can be built from scratch and can provide a quality income stream Cons – Income can fluctuate due to a variety of reasons (affiliate commission changes, Google/Social Media algorithm changes, website hacks). A lot of time is usually needed when building your online business in the early stages.
Note we haven’t included investing in alternative investments such as crypto, NFT’s, collectibles/art, precious metals as these don’t derive an income. If you are talented enough to make money from the buying and selling of these then great work to you, keep it up!
I have limited money, how can I increase my income streams?
Either build one or start saving to invest in one (or several). This could either be a real world business or on online one.
As we touched on in some of the examples above, you can use your time and sweat equity to build an income stream, namely a bricks and mortar or online business. Say you are a plumber and have been working for an employer for a while but are looking to make the leap to owning your own business.
You’ve got a good reputation, have some savings, have quite a few people asking for plumbing work and most of your weekend is filled with too many plumbing cash jobs so you decide to make the leap. Work gets busy you hire additional plumbers, admin staff and apprentices and before you know it you have a thriving plumbing business.
Maybe you don’t have a trade to build a business around however you have skills you have learnt throughout your career. You may be highly proficient in Microsoft suite of tools such as Excel, PowerPoint and Word, so much so that you are the go to guru on anything Microsoft in your office. You may have had access to Microsoft workshops and training paid for by your employers and believe your skills are good enough to teach others.
You start small advertising your skills via Facebook and get several people reaching out to you. Feedback is positive, cash flow is improving and you decide to make a go out of this. You set up a website, increase your training and decided to make courses (in your own unique way) about teaching all the great things about Microsoft Office products. Before long you are turning over 6 figures a year and you’ve set up a successful online business.
You may not have a trade or talent but you are intrigued about the business model of building or investing in website and want to build a business around this. You don’t have much money so you do a bit of research and find a subject to build a website about, one that you are familiar with given you will be writing all content.
You teach yourself SEO basics, website building basics and start pumping out content. Slowly but steadily you get traffic and decide to look at ways to monetize the site. You put some ads up and after a month or so you’ve earnt your first $100 online. You look to outsource some of the content (as there are only so many hours you can devote writing content) and reinvest any profits into the website.
Before too long you’ve got a website that’s worth 5-6 figures and you are looking to expand your website portfolio. Or your online venture might look towards selling products online or even drop shipping.
Alternatively you may feel investing is the way to go and use your savings to go into shares, property and other income producing investments gradually building this up to an income stream to replace that of your current job. Once you have saved up at least 3 months-12 months of lifestyle expenses (in the case of an emergency) then you should be very comfortable to invest (responsibly) into a growth investment that will lead you on your path to financial independence.
The point for all the above is it’s never too early (or too late) to start working on your financial situation and building multiple income streams. Once you’ve built your first income stream start working on your next one.
If you are building income streams yourself make sure you don’t spread yourself to thin. Build one income stream and get this working autonomously then look to build or invest in your next one.
When should you start to move away from your main income stream and set up additional ones?
The simple answer to this is what income can you life on to cover your lifestyle expenses? There may be a basic level of living expenses and there might be a more luxurious level of lifestyle expenses. Basic may entail living in a cheap apartment, forgoing ‘luxuries’ such as a daily coffee (or two), dining out, gym memberships or even a car.
Obviously a more comfortable level of lifestyle expenses would be desirable so the aim is to build your income streams to cover this.
As mentioned above you want to disaster proof your income and to do this set up multiple income streams across a variety of sectors. Ideally you want to diversify. Let’s say you are a big property person and that’s your focus for income streams. This would look great for you in 2007 however in 2008 not so good. The same goes for building or owning online businesses.
You might go on a spree thinking valuations will keep increasing however what if they don’t? You can (and should) focus on your area of expertise however you want to have at least one income stream in an area that is mutually exclusive from main passive income stream.
Multiple passive income streams is the aim for financial independence. The sooner you start working on these income streams, the sooner you will be able to take control of your calendar and control of your life, living it on your terms, your way. You don’t need a large amount of capital or expertise to start either. Attitude and the capacity for hard work will take you a long way in this world and will definitely put you on the path to financial independence.