Extra Income Guide
By Pinyo • Jul 29th, 2008 • Category: Making MoneyUpdated: 9/3/2008
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 provide 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 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 passitivity 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. And here is a nice article I found recently: 51 Life Lessons Learned from Starting My Own Business at Dream Think Act.
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
Lastly…
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.
All posts by Pinyo
Interesting Article. I have been wanting to start something, but it takes so much time to invest in order to start. In some cases it is more time than I am willing to afford. I am more of a passive investor. I don’t have kids or a family so it makes it easier to start something. I think part of it is that I am scared of failure and how that will affect me. I know that I will hit something eventually.
I know that 1/10 businesses fail, that is why I’m scared if I invest all of this time it won’t work. Sorry about the rant, I enjoyed the article and found it very informative.
I definitely think that having multiple sources of income gives the greatest degree of real wealth.
As someone currently working a full time job, a part time job and then some, I have to say that I really appreciate the slightly more passive forms of income from my investment portfolio.
It still takes time to manage, but it takes less time than all the other work. I am hoping that in the future I can take the money I earn actively, and turn it into more passive forms of income.
Thanks for the link to the 40+ ideas too, I am going to check that out.
Very interesting read, thanks for posting this. I too look at my bank account sometimes and wonder, “why is this balance so good when I earn minimum wage?”. Then I realise I earn money from various other sources: market researches, gifts from family/ friends and through ads on my website. It all adds up in the end.
Even with passion, it is a lot of work to develop other income streams. My passion is photography and I have two blogs but you know how many other photo blogs are out there. So I have them for my passion and if I am in the right place at the right time, they might develop as an income stream.
I am really trying to tap into the passive income section of the continuum you described and it is really turning out to be a lot of work! But I guess that is the pay-off, lots of work now for no work later.
Nice guide. I don’t know if having a career is dead, but you definitely don’t want to have a skill that is only good for small spectrum of jobs. Job-hopping seems to be the norm nowadays.
Agree. I once lose my job several years ago because of downsizing (courtesy of Macromedia, eventually bought by Adobe) and once thought how vulnerable anyone’s job is especially nowadays. It was then I started doing freelance web development jobs which did help me during the times I have no cash flow.
Your guide looks good,however you may want to add what to do with the “extra” money earned from multiple income streams. A discussion about savings, investing and retirement will probably make it the big deal
@Jerry — Thank you. I updated the post regarding effort. Here’s my thought. For many jobs, we spend 4 years in college (time, effort, and money) without the guarantee that we will get the job. If you put it into perspective, it’s natural that any new income stream will require some level of initial and ongoing effort.
@Ross — “It all adds up in the end.” EXACTLY!
@Larry — Yes, sometimes being in the right place at the right time helps. Sometimes, you just have to make it happen — i.e., create your own luck.
@Steward — I updated the post with my thought on effort today.
@Jonathan — I should say career is dead for many of us. Career is still alive and well in certain industries and professions, but for a corporate drone like me, it’s dead.
@Sam — I added a section about what to do with the money. Thank you!
This post deserve my stumble. Cheers!
Fantastic article. I love content on multiple income streams especially focusing on passive income!
In pursuing my multiple incomes, I have created a blog which is earning a couple hundred bucks a month for me. Next, I created a second blog teaching others how to combine business and technologies such as blogging and email lists. Both blogs have very different business and monetization strategies, so I hope that through this sort of diversification, I can generate consistent income.
Thanks again for the great content. I look forward to reading more.
This was a good post - I am consider my possibilities.
Thanks!
WOW!
This was a great read post. I would highly recommend a book that I first read a few years ago about consulting. It gives excellent advice about using consulting as a way of generating additional income but then went into how to layer your services so that has a consultant you are also generating flows of income as a speaker, editor, writer, etc.,. .
Unfortunately, I can not remember the name of the book or it’s author but I will try and locate it tonight and post the information. If I can not find my way back here tonight; I’ll also post the information on my Blog.
Be well.
#1 Passion and #3 Patience are in a constant battle with one another in my mind. I can have tons of passion for a new income stream, but giving patience at the same time, seems impossible. Any suggestions? Because you want to be consistent and not forget about it at the same time. I guess I just lack patience in general, but especially with trying to create a new business or a new income stream.
@Sam — Thank you.
@Kevin — Thanks. I agree that its good to diversify income beyond one site/blog. Good job!
@Alisa — Thank you for the WOW! I guess I’ll check out the name of the book on your blog.
@Scott — It’s not passion for more money, it’s the passion for the subject matter — although, I am very passionate about my money too
@Pinyo - Haven’t found the book Yet! Still searching but you are always welcome to stop by anyway. Be well!
I really like this article! Very pragmatic. My biggest difficulty is staying focused. There are so many things I want to do, and so little time! My blog’s been taking up a lot of my free time, lately. It was especially bad when I was first setting it up. I had to learn everything from scratch! It’s a blast, but takes time, for sure. I don’t know when the last time was I read a book that wasn’t about blogging or finance!
Stumbling.
With our shaky economy, I definitely agree that having multiple fields of income is essential for stability. Relying solely on a 9 to 5 job is dangerous due to lay offs but so is subsiding only with your own business which could fall quickly with the economy.
Another difficult balance comes in my opinion with starting your own side business - you want all the freedom of being your own boss but it is extremely difficult to build something from the ground up! I’ve recently found a compromise for my own life: I joined an internet marketing company called ViSalus Sciences which has given me a business plan but flexibility to do it my own way.
I could go on for a while with excitement since ViSalus seems to have provided the prefect solution for my side business, but since I am technically not supposed to advertise on this forum, why don’t you email me at annagilbert.ia@live.com and we talk one on one about this exciting opportunity!
Gotta stumble this one. Very nice article. Thanks!
@Greener Pastures — Thank you. Yes it does take a lot of time and that’s what many people do not realize. However, you can control the pace, so there’s no need to rush. Lastly, remember focus on the most important tasks first. Yes, there are many things to do, but only a handful of them will provide you with positive result.
@Austin — Thank you for the Stumble!
This guide is unbelievable, I have been reading through it the last few days clicking all the links and taking down notes. I am determined to somehow find a way to generate an alternative income to help make life a little bit easier. This is the blueprint and I am not talking about HOVA. Thanks!!
This is a great post. I was just thinking about alternative incomes and I couldn’t have found this at a more perfect time.
Thanks!
@Doctor S and Christine — Thank you. By the way, what is HOVA?
I think you’ve done a great job of outlining the difference between income you must actively work toward and income that continues to come in after you do the work. I also like that you indicate the value of a part time business. I run a site on becoming a consultant and I emphasize this to my readers — it’s okay to become a consultant a little at a time. Many of my readers have been able to achieve financial goals simply by running a consulting business on the side.
I think this article is very good! I have read Robert Allen’s Multiple Streams of Income and some other financial guides, and find that multiple streams is the way to go! I would like more information about producing income streams online however. I did find SiteBuildIt, which is a website and product that helps you to learn how to earn in ecommerce. Cheers.
Hahah HOVA is a reference to jay Z, he had an album called the blueprint!
@Barb — You don’t need to pay for SiteBuildIt to earn money on the web. You could start a simple blog (even using free blogging platform if you are not technical). My recommendation is to set up a WordPress on your own hosting service and domain name if you can manage it.
@Doctor S — I was wondering why Jay Z keeps coming up when I did searches for HOVA.
Great article, In my search for ways to make a little money on the side, I came across thousands upon thousands of sites claiming that you can earn $1500 weekly in just 24 hours. But after weeding though all of them I came across a website that was upfront about earning potential and the time it would take to earn it. I have been working at it for six weeks and have started to make a small income, enough to pay a few bills.
@Bob — If you can do that in 6 weeks, that’s great. My site didn’t turn profit for 3 months, but it could pay my mortgage now just over a year later.
Hi, I really appreciate the time you have taken to provide quality on your blog. Its rare now days..
I like what you said about
# Passion — Do what you love.
# Expertise – Focus on what you are good at.
# Persistence — Not everything you try will be successful, just keep trying.
Its so easy to end up spreading yourself too thin and trying to cater to everyone and lose focus..
thanks
an alternative income is rightly a great way to provide financial freedom in the future. Debt and credit works on the basis that you are tied into a specific company or organisation for a number of years, but paying down your debts more quickly reduces your debt and gives you more freedom in the long term. Paying off a little extra now, means a saving a lot more in the future, as you pay less interest on it