Extra Income Guide: How to Make Extra Money

This guide is intended to provide readers with ideas, how-to tips, 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, this is the guide for you. On the other hand, this guide is not about getting rich quick or making easy money.

Grow Alternative Income Streams
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 earn by working for someone. In return for your time and effort, 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 can be money you earn from blogging, selling stuff on eBay, investment income, online business revenue, or other projects.

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 degrees of passivity and it’s desirable to have highly passive alternative income sources.

Here’s an illustration of active-passive income spectrum:

Active and Passive Income

Create an overall strategy that allows you to diversify your income by building multiple income streams and purposefully moving 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 share an 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 independence from our primary source of income, so alternative income that can eventually replace primary income. Cultivating alternative income will take you a step closer to financial freedom.

Financial Stage 4

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.

There are several advantages to having multiple income streams:

  • If you lose your job, your income is lowered as opposed to disappeared.
  • The higher you are on the 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 is 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 to make do.

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. 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. 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 at a job (or get a second job):

  1. Building your primary income (i.e., your job/career) 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.
  2. 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 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

I have a simple framework that can be used to create multiple income streams. There are endless possibilities when it comes to business ideas, and you can apply this framework to many of them.

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:

  1. Passion — Do what you love.
  2. Expertise — Focus on what you are good at.
  3. Patience — Don’t expect to see the desired results right away.
  4. Persistence — Not everything you try will be successful; keep trying.
  5. Diversify — Don’t stop at the first thing that works; keep looking for more and different ways.
  6. Little by little — Trickles of money from many streams combine to provide a decent amount of money.
  7. Commitment — Some ideas take more effort than others.

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. 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 Making More Money

If you are looking for a concrete place to start as you develop alternative income streams, here is my 4-step guide:

  1. Start with ideas related to things that you enjoy doing. Get away from the stuff that you do not like. And you’ll spend a lot of time getting your business going, so you might as well do something you like.
  2. Create 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.
  3. 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.
  4. 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.

40+ Alternative Income Ideas and Resources

If you want access to some great business ideas, head over to 40+ Alternative Income Ideas and Resources, where you’ll find over 40 income building ideas and resources.

Using 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

Lastly…

I’d love to hear your comments regarding this guide so that I can make it more useful.

About the Author

By , on Aug 27, 2013
Pinyo
Pinyo is the owner of Moolanomy Personal Finance. He is a licensed Realtor specializing in residential homes in the Northern Virginia area. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, and financial literacy author.

Leave Your Comment (54 Comments)

  1. Jonathan says:

    Totally agree that earning more money is about utilising your skills. If you hate what you’re doing where’s the fun in that. I know a friend who enjoyed baking and he started making cupcakes. Before long he had developed this into a business and now he runs to cupcakes chains, awesome!

  2. Taran says:

    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.

  3. David Sneen says:

    I liked your spectrum. People often do not understand the relationships between items. A graphic like that speaks volumes, without burdening your text with an unnecessary aside.

    Those of us who are not currently looking for another income source are either actively working on their second income source or oblivious to their financial needs.

  4. Davida says:

    @David… you hit the nail on the head…it’s really about conditioning, which makes it a really sad thing. The Good News is that may people are finding out the truth and breaking free.

  5. David Sneen says:

    Society conditions us to believe that our job is our major source of income, and there is little else we can do that will reward us nearly as well. Pinyo, I am impressed by how thorough you are in covering such a broad subject.

  6. karen says:

    I use an Android app called Profit Bandit which scans any item in a store or your house and spits out how much money you can make if you sell it online. It does all the Amazon selling fees / shipping fees calculation for you. Pretty sweet.

  7. Billy hunt says:

    after reading the articles i find the imformation very helpful…i am looking for a way to earn extra income…this is a very creative way of earning and enjoying it at the same time…

  8. asithi says:

    A blog can become passive only when you earn income without having to spend a large amount of time updating it with posts. But once you build a reasonable archive (maybe a year or two), you can pretty much get away with updating it once or twice a week and still continue to earn income from your archived postings.

  9. AJ says:

    If you are trying to break into a new area of freelancing, one which you are very passionate about and truly enjoy, then one of the best tips that I have ever heard is to volunteer your work for free. You are able to rack up professional experience doing jobs and learn a little about how the industry works, and the consumer is able to get a good quality of work at a very resonable price. Many professional organizations may not bite, but for the average person who, for example, needs their birth certificate or a short pamphlet translated to another language, then the risk of using an unexperienced translator is small compared to the benefit of a free service.

    This only works, of course, in a field in which you are truly passionate and would not mind hobbying in for a while while you build up a client base. Eventually, you will have enough experience in order to begin charging for your services.

    This tactic can work in many fields, including writing, translating, web site planning, photography, even home repair or remodeling.

  10. Mimi says:

    Pinyo – I completely agree with everything you are saying about the importance of having multiple income streams and building passive income as part of that. If your readers are looking for 5 steps to starting each revenue stream, I’d like to invite them to check out a blog post I wrote telling them just what to do:

    http://takechargebuildwealth.c.....-to-start/

    Thanks for a great article – with all the jobs disappearing, the concept of multiple income streams is more important than ever.

  11. Jane says:

    I think a lot of people classify “residual” with “passive” income streams. I’ve been restructuring my income stream sources over the past several years to the point where I differentiate between “residual” and truly “passive” income streams. As of the most recent quarter, my income stream distribution is 36% active 49% passive 15% residual.

    I tend to consider blog driven income streams as “residual” because you often have to keep writing that blog or hire someone to keep your blog active. If, however, you can earn $100 in monthly ad fees without ever writing another post – or you write maybe 10 posts PER YEAR (not per day as some bloggers do) – then and only then I’d move that over to the “passive” category.

    There are some blog ventures that I would classify as “a job” because it literally is a job, and not a well paying one. Anything with a low barrier of entry becomes saturated very quickly, and hyper-competitive just as fast. Of course, one can easily transition this “job” into a residual and even passive income stream via a solid strategy.

  12. Squirrelers says:

    Excellent article! I really like this, well-written and thorough.

    Now, I do think that it does make sense to focus on what’s bringing in the primary source of revenue – it’s kind of like making sure your business (you) keeps it’s existing customer (employer). By delivering value, helping your employer bring in revenue (or save), and working to be an “A” player, you will options in your career and protect your largest income stream.

    That said, I agree that it absolutely makes sense to target multiple streams of income. Putting ALL of one’s eggs in one basket is not wise. Believe me, I can attest to that. Best to do really good work in your day job, but keep your head in the game and think like an entrepreneur at all times. This way, you can ultimately – through trial, error, and experience – become an entrepreneur. It’s a skill that allows one to open up even more income streams.

  13. Ryan says:

    @Jennifer — Can you expand on writing for Associated Content? I have never heard of that before. Also, another idea is to create t-shirt designs and sell them on sites like Zazzle.. I’ve made a few bucks doing this.

  14. Pinyo says:

    @danny — the three I know that works well are blogging (and make money via advertising), content writing, and using freelance job sites like oDesk and others.

  15. nick says:

    I couldnt’ agree more! diversifying yourself and making sure you’ve got hands in lots of different pots is great! Lot’s of CPA’s and P&C agents work together with us as a way for create passive income for their practices!

  16. Well written Pinyo! It just takes time. Give it a year or two, and people will be amazed to see how much things grow.

  17. danny says:

    does anyone know of a home based business that really works? i see a bunch of them online but do not which ones are legitimate. if you can please help. could really use the money

  18. Wess Stewart says:

    Great post. Over the past couple of years I’ve started trying to set up some additional income streams, but in the past few months have kind of strayed from them. I need to get back into the game.

    Thanks for the motivation. 😀

  19. Becky says:

    I am pretty excited and feel more educated with your elaborate list that seems to cover all the areas of multiple streams of income.

  20. I like your post very much it has given me additional insights about how to make extra income online. It really takes time to build our online businesses but the good thing about it is that it also builds character.

  21. I did enjoy your content and it is very well written. I am personally looking to add a 3rd or 4th income stream and I am always interested in learning what the top 20 low-investment businesses are in a given market. Would you have access to such information that may be incorporated or linked to your blog?

    Thank You,
    Craig

  22. erzebet says:

    i liked your article but i would add some things :

    you said you need passion for an alternative business- in my case, my career is what i live for- i am an engineer and i feel like it is better to develop more skills in engineering than to create a side business and to invest my money in a business

    to me, my only alternative income is the saving account and some CDs – and for the amount of time involved i think they are more than perfect- i can always use the/some of the money- which can’t be done with a business unless you sell it

    i would add that having very few things, renting and deciding not to have kids is a better way for me to feel free and it simplifies everything; working on too many fronts would make me lose sight of what i really want to accomplish so these are my reasons not to start a business- if it makes sense:)

  23. Vinod Kumar says:

    first of all thank you very much for very great and educative article for deep explanation. I think in this world everybody can earn active income only for some period of life after this , it is need that some passive income must come from any good source . I will also act upon your advice and will become financial independent .Keep writing and guide us .

  24. Jennifer says:

    Great list! I have made extra money by selling on Etsy, blogging, writing for Associated Content, being a Mystery Shopper, selling on Ebay, and by babysitting at the local church nursery. (Selling on Etsy has been the most fun.)

  25. mr dprince says:

    A very good post…very concise and to the point. I can definitely use some of this information for myself and to share with others.

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