Extra Income Guide: How to Make Extra Money
, on October 1, 2010
This guide is intended to provide readers with ideas, how to’s, and resources on building multiple income streams and generating extra income. If you are interested in earning more money and becoming less dependent on your job, then this is the guide for you. On the other hand, this guide is not about getting rich quick or making easy money.
Photo by ErRbBbiiIE via Flickr
The Anatomy of Income
Below are various sources and types of income to lay the foundation for this discussion.
Sources of Income
- Primary Income – The most common form of income is the money you earned by working for someone. In return, your employer provides you with money in the form of a wage or a salary, plus benefits.
- Alternative Income – Money earned from sources other than your job. This could be money you earned from blogging, selling stuff on eBay, investment income, online business revenue, etc.
Types of Income
- 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 degree of passivity and it’s desirable to have highly passive alternative income sources.
Here’s an illustration of active-passive income spectrum:
In short, I believe that it’s a good policy to diversify your income by building multiple income streams and purposefully try to move toward more passive income sources.
For additional information, please take a look at Building, Diversifying, and Shifting Your Income Streams.
Why Should You Care About Alternative Income
Alternative Income Is An Essential Component Of Financial Freedom
In my 5 stages of financial health article, I shared this illustration that depicts Power Wealth Building. As you can see below, alternative income increases your total income and accelerates your wealth building capacity. Moreover, we associate financial freedom with our independence from our primary source of income, so alternative income that can eventually replaces primary income will take you a step closer to financial freedom.
Career Versus Alternative Income
Next, I’d like to briefly touch on the question of career versus alternative income. I believe that building multiple streams of income should be the career of choice for the majority of us today.
Here are several advantages of having multiple income streams:
- If you lose your job, your income is lowered as opposed to disappeared.
- The higher up you are in your career, the harder it is to find an equivalent paying job.
- Multiple income streams will help you reach your financial goals faster.
- Multiple income streams give you a taste of financial freedom — after all, financial freedom is basically 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 to make do.
In short, I believe that the concept of having a 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. I think it’s imperative for everyone to minimize their income risk by building multiple income streams.
For additional information, please take a look at Building Multiple Income Streams As A Career.
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. In particular, why should you try to build one when you could work a few extra hours at work to get the same amount. There are two points I would like to make with regard to this:
- Building your primary income (i.e., your job/career) took a tremendous amount of time, effort, and money as well. Many jobs require a college degree and some requires even more education and training. I think 4 years of college is a lot of time, effort, and money! If I have to spend 3 hours a day for a year to build an income stream that could produce $1,000 a month, I don’t think that’s too bad.
- Once you set up an income stream (particularly a passive one) you could shift your focus to other streams and it continues to produce. For example, if I have $10,000 in a high yield savings account earning 3% per year, I will continue to receive $300 a year even if I stop paying attention to that income stream. On the other hand, if you stop working, your paycheck will also stop.
How To Make More Money With Multiple Income Streams
I hope you are not looking for a step-by-step guide because there are so many ways to earn more money that it would be impractical to elaborate them all. Beside, I wouldn’t qualify to give you a step-by-step instruction because I am only familiar with a handful of techniques. However, I can give you a framework that you can follow to earn more money.
7 Key Factors to Build Successful Income Streams
If you are interested in building income streams, this article is the place to start. Building multiple income streams is simple, but not easy. Based on my own experience, I feel that these are the seven key success factors:
- Passion — Do what you love.
- Expertise – Focus on what you are good at.
- Patience — Don’t expect to see the desired results right away.
- Commitment – Some ideas take more effort than others.
- Persistence — Not everything you try will be successful, just keep trying.
- Diversify — Don’t stop at the first thing that works, keep looking for more and different ways.
- Little by little — Trickle of money from many streams will turn into a decent amount of money.
For additional information, please take a look at 7 Key Factors to Build Successful Income Streams.
Becoming 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. As such, a good option is to become a part-time entrepreneur. Being a part-time entrepreneur allows you to maintain your regular income plus benefits, while gives 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 to develop your income streams.
For additional information, please take a look at Why Should You Become A Part-Time Entrepreneur.
How To Start Making More Money
Okay, some of you may still crave a step-by-step guide, so here is a high level 4 steps guide to start earning alternative income:
- Start with ideas related to things that you enjoy doing. After all you want to get away from the stuff that you do not like. And you’ll be spending a lot of time getting your business going so you might as well do something you like.
- Create proper business plan. Even if you have a very simple business, you want to do your research and start with a good plan. Small Business Administration (SBA) has some of the best resources on the web to get you started. At the least, you want to make sure your business is viable.
- Implement and execute. The best plan and idea don’t mean a thing unless you can turn it into reality. This is the part where it takes some courage and a lot of willpower to make things happen.
- Learn and improve. Even if your business fails, it’s a success if you can learn something from it. Very few people are successful on their first attempt, so don’t give up. Your task is to learn from past failures and turn that cumulative experience into an eventual success.
40+ Alternative Income Ideas and Resources
If you are looking for more business ideas, head over to this article where you’ll find over 40 income building ideas and resources. Instead of repeating the list here, please visit 40+ Alternative Income Ideas and Resources.
What To Do With The Extra Income
Once you have the extra money flowing in, there are many things you can do with it — i.e., help you achieve your financial goals. Here are some ideas:
- Pay off debt
- Start an emergency fund
- Save and invest
- Reinvest it 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’ll be keeping this guide updated going forward, and hopefully, turns it into an eBook one day. I’d love to hear you comment regarding this guide.
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