Most people only have one stream of income and that source is usually receiving a salary or wages from working a job. This puts you in a risky financial situation because if that stream of income goes away you are in trouble, especially if you do not have a sizeable cash reserve. This is also the hardest way to earn income and is known as active income because you are trading your time for money.
To be safe I recommend trying to develop at least three streams of income. This can come in the form of salaries/wages, investment income and income from side businesses you are involved in.
My development of income streams
Currently I have two streams of income and that comes from my salaried job and investment income. The area I am trying to develop is income from a side business venture and become the principal owner of the business. While this blog does not provide me with any income right now, it does have the potential to be monetizable in the future if I am consistent and develop a strong following.
In addition, I will be investing in developing more skills and knowledge in my profession to potentially consult businesses on the side in corporate finance functions like financial planning & analysis, treasury and risk.
Another way to develop another stream of income that can come right away with less risk is getting a part-time job. It may not be as scalable as starting a side business, but it does offer guaranteed income in exchange for your time.
Not only will developing multiple streams of income reduce your financial risk, but you also could exponentially increase your yearly income.
The types of sources of income you aim to receive will depend on your personal situation and you should evaluate this before you try to develop these streams into your financial life.
Some people need more cash immediately and may be better off working a side job. While, other people have more available time and capital which is suitable to developing a venture on the side. Some professionals may be earning a very high salary due to their expertise and experience, but need to invest these earnings to receive investment income.
Observe wealthy individuals – Passive Income
If you observe wealthy people you will notice that many of them have over 5+ sources of income. Many of them are involved in multiple businesses, have strong investment portfolios and are usually the principal owner of a business they started or moved up in. This is known as passive income and is the best scenario to be in.
Earning more investment income than income from your salary and side business is the ultimate goal because you are having your money work for you. You are no longer trading your time and effort for money.
I know a wealthy man who receives over six figures a year in dividends alone. Imagine being in that scenario, earning over $100k net just from sitting home and managing your investments. That is the ideal scenario and one of the reasons why I am obsessed with personal finance and investing.
The Bottom Line
Aim to develop as much passive income in your life and work towards a situation where you do not need active income such as being an employee or self-employed.