How To Create Multiple Streams Of Income

If you are thinking about diversifying your income, you may be asking yourself, “How do I diversify my income?” It’s actually pretty straightforward, and many of us have already created multiple streams of income; we just don’t realize it.

The goal of creating multiple income streams should be to maximize your potential in each category available to you. If you are just starting out, it really isn’t reasonable to expect you to generate tons of rental income. How To Create Multiple Streams

However, if you start maximizing your income generating potential through your primary salary, you will find yourself having excess income that you can reinvest to generate additional income streams use different buckets of assets.

Primary Salary

For most people, their primary salary is their main income stream. In fact, I think everyone starts this way (if you didn’t, I’d love to hear your story!). The goal is to maximize your primary salary to a point where you are generating enough free cash flow to reinvest in secondary income streams.

How do you do this? Well, try to get the highest paying job you can! Ask for a raise! Utilize services, such as Glassdoor.com, to see how your salary competes with others in your same job. Some companies really force employees to leave to get a raise, and then come back for another raise.  This industry jumping promotional strategy is very common and could work. How To Create Multiple Streams

Or, there is another theory for your primary salary – generate enough to have a little excess cash flow, but do it at a place that you can work stress free and have time to dabble in other projects. A good friend of mine has this setup – he works 10-5 and makes $50,000 a year. This allows him to easily cover all of his expenses, but the shorter hours and flexibility in his job allows him to pursue his secondary income generating ideas!

Either way, the great thing about your primary salary is that you can usually get benefits, such as health insurance, that really protect you while you are pursuing your other ideas!

Secondary Salary/Spouse’s Salary

No matter what venture you undertake in life, you need a team. I’m a firm believer in team work, even if it is just to bounce ideas off of, or to have someone tell you that you are off track. For many individuals, this person is their spouse, who also brings some income diversity to the table. Just like I mentioned above, if your spouse has income, try to maximize it. How To Create Multiple Streams

I would throw in some caution here: if your spouse works at the same company, or in the same industry as you, you are not diversified, and should something happen, you could be in a world of hurt. Companies do go out of business, companies do lay employees off. There is nothing wrong with working together, but realize that you are not diversified, and you should be trying to maximize other income streams as a result.

Once you’ve maximized your salary and your spouse’s salary, you can deploy that excess into other buckets to create more income streams.

Investment

After employment, I think that most individuals gain income diversification through investing. It is important to look at why we invest: because at some point we plan on using this money for something. For most, it is saving for retirement, and the investing is done through vehicles, such as a 401(k) or IRA.  But investing is not just about stashing money away for a rainy day – that is what an emergency fund is for. Investing is about having enough capital to generate income. How To Create Multiple Streams

Investing generates income through dividends, interest, and return of capital. You really want to maximize the first two, and stay away from the return of capital as much as possible. https://www.merriam-webster.com/dictionary/credit

Think about it. If you are saving for retirement, you are trying to save enough in investing to generate enough income to replace your primary salary. Let’s take my friend’s example above: $50,000 a year. To generate $50,000, you would need to have almost $1,700,000 saved, and be able to generate a 3% cash flow on that money (which is reasonable if invested in dividend paying stocks).

You could also draw down on your principal if needed, but this is a return of your invested capital, and if you continue this for a long period of time, you run the risk of exhausting your resources. How To Create Multiple Streams

It’s also important to invest vs. just saving because saving cash just won’t grow fast enough to be useful to you. You need to invest in assets that will grow. See the average return by asset class below (and notice how your own wage growth doesn’t keep up well either).