This guide is intended to provide readers with ideas, how-to tips, and resources to build multiple income streams and make more money. If you are interested in becoming less dependent on your job and earn your way to wealth, this is the guide for you. On the other hand, this guide is not about getting rich quick or making easy money.
- Two Types of Income
- Seven Sources of Income
- Alternative Income
- Your New Career
- The Time and Effort to Build Alternative Income Streams
- How to Make More Money with Multiple Income Streams
- What to Do With the Extra Income
Two Types of Income
There are many different opinion on how many types of income there are. Personally, I feel it comes down to two main types:
- Active Income (or Earned Income) — You are working for money. The key characteristic of active income is the cost of time. You must trade time (a limited resource) for money. If you stop, the income also stops.
- Passive Income (or Residual Income) — Money is working for you. This is the opposite of active income. Once you stop spending time on these income sources, the income flows don’t necessarily stop. Of course, there are varying degrees of passivity and it’s desirable to have highly passive income sources.
Here’s an illustration of active-passive income spectrum:
Your goal is to have more passive income, and depend less on active income as you grow older.
Seven Sources of Income
In term of sources of income, or streams of income, you want to build up as many as you can, especially the passive ones. Here are some sources of income…the exact categorization is not as important as the focus on building up many sources of income.
- Job Income – This includes your primary job, part-time job, second job, side gigs, etc. One important thing to note is that if your “business” requires your active participation, then it is a job. This is where you trade time for money.
- Business Income – This is any business that doesn’t require 100% of your active participation to generate income. If you can scale it so that you don’t always have to work for the business to make money, then it falls into this category.
- Investment Income – This is a huge category since there are many types of investment.
- Real Estate Income – This is an important investment and I think it deserves its own category.
- Royalties and Patents – This covers all the sales and licensing of intellectual properties and creative work.
- Inherited Income – If you’re one of the lucky ones that don’t have to work for your money….well, you wouldn’t be reading this blog anyway…
- Other Income – This is a catch-all category that includes income from Social Security, Pension, Unemployment, and anything else I can’t think of right now.
Did I leave out anything?
Your goal is to have as many sources of income as you efficiently can.
Alternative income is basically a catch-all for any non-primary job income.
This phrase will make it easier for us to discuss the concept of income generation and wealth building since I don’t have to keep saying “all your income streams that are not from your primary job” — that’s a mouthful!
Most people have one job and may be a small investment portfolio and that’s it!
Having a healthy alternative income is an essential component of financial freedom…after all, you have to be able to quit your job in order to retire.
Alternative income is important because it increases your total income and accelerates your wealth building capacity.
Your New Career
When most people think about career, they are thinking about their job. This is the wrong way to think. While your job is important early in your life, your career should be focus on building alternative income streams NOT building your job.
There are several advantages to having multiple income streams:
- If you lose your job, your income disappear. If you lose an income stream, your income is lowered.
- The higher you are on the job career ladder, the harder it is to find an equivalent paying replacement job.
- Multiple income streams will help you reach your financial goals faster.
- Multiple income streams give you a taste of financial freedom. For most people, financial freedom occurs when you no longer need your job to cover your living expenses.
- Multiple income streams give you greater flexibility and leverage. You’re in a much more powerful position when you know that you are not 100% dependent on your job.
I believe that the concept of having a traditional career is dead (with a few exceptions).
It’s too risky to rely on one source of income, especially when most employers do not hesitate to cut jobs to make their numbers look good. It’s imperative for everyone to minimize their income risk by building multiple income streams.
The Time and Effort to Build Alternative Income Streams
I received several comments about time an effort it takes to build and grow alternative income streams. Why should you try to build another income stream when you could work a few extra hours at work to get the same amount?
Here are two good reasons to build an additional income stream, rather than work more hours at a job (or get a second job):
- Building your primary income (i.e., your job) takes a tremendous amount of time, effort, and money as well. Many jobs require a college degree and some require even more education and training. I think 4 years of college is a lot of time, effort, and money! Compare all of that time to spending 3 hours a day for a year to build an income stream that could produce $1,000 a month.
- Once you set up an income stream (particularly a passive one) you could shift your focus to other income ideas. For example, if you have $10,000 in a savings account earning 1% per year, you will continue to receive $100 a year even if you stop paying attention to that income stream. On the other hand, if you stop working, your paycheck will stop.
How to Make More Money with Multiple Income Streams
7 Key Factors to Building Successful Income Streams
Building multiple income streams is simple, but not easy. Based on my own experience, I feel that there are 7 key success factors:
- Passion — Do what you love.
- Proficiency — Focus on what you are good at.
- Patience — Don’t expect to see the desired results right away.
- Effort — Understand that some income ideas take more effort than others.
- Persistence — Not everything you try will be successful; keep trying.
- Diversify — Don’t stop at the first thing that works; keep looking for more and different ways.
- Little by little — Trickles of money from many streams combine to provide a decent amount of money.
For additional information, please take a look at 7 Key Factors to Build Successful Income Streams.
Become a Part-Time Entrepreneur
As we established above, it’s unwise to rely on one source of income and bet the farm on your career.
One option is to become a part-time entrepreneur. Being a part-time entrepreneur allows you to maintain your regular income plus benefits, while at the same time giving you the opportunity to explore and expand your alternative income streams.
As a part-time entrepreneur, you can afford to make mistakes and take on more risks. You can also go at your own pace as you develop your income streams.
For additional information, please take a look at Why Should You Become a Part-Time Entrepreneur.
How to Start Building a New Income Stream
If you are looking for a concrete place to start as you develop alternative income streams, here is my 4-step guide:
- Start with ideas related to things that you enjoy doing. Get away from the stuff that you do not like. You’ll spend a lot of time getting your business going, so you might as well do something you like.
- Create a proper business plan. Even if you have a very simple business, a good business plan can help keep you on the right track, providing you with direction. Small Business Administration (SBA) has some of the best resources on the web to get you started. At the very least, make sure your business is viable.
- Implement and execute. The best plans and ideas don’t mean a thing unless you can turn them into reality. It takes some courage and a lot of willpower to make things happen, and you need to be persistent in your efforts.
- Learn and improve. Even if your business fails, it’s a success if you learn something from the experience. Very few people are successful on their first attempt at starting a business, so don’t give up. Your task is to learn from past failures and turn that cumulative experience into an eventual success.
Income Ideas and Resources
To help you get started, I’ve put together a couple of list that could be a good starting point to help you zero in on idea(s) that you want to try:
- 21 Best Passive Income Ideas for 2019
- 40+ Extra Income Ideas and Ways to Make Money
- 40+ Money Hacks and Ideas to Improve Your Finances in 2019
What to Do With the Extra Income
Once you have extra money flowing in, it’s time to use the cash to help you achieve your financial goals. Here are some ideas:
- Pay off debt
- Start an emergency fund
- Save and invest
- Reinvest in your income streams to make them bigger and better
- Research and start a new income stream
- Buy a new income stream
- Spend it and enjoy life
I’d love to hear your comments regarding this guide so that I can make it more useful.
Pinyo Bhulipongsanon is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.