These days, a lot of people are juggling several income streams, and why not? For many of us, relying on just one salary simply isn’t enough, especially when you’re a younger professional trying to get ahead. Some of us have jobs with irregular incomes, while others are working in jobs that don’t feel all that secure. Then of course, there are those who are focused on paying off debt as fast as possible, and those saving up to chase their dreams.
There are so many benefits to having multiple sources of income. You get a financial safety net, they help you build savings, and even give you the freedom to try out new career opportunities. So let’s have a look at the different types of income streams, how having multiple income streams can help you, and also some ways you can start generating that side income.
Why You Need Multiple Income Streams
Just as one diversifies their investment portfolio to reduce risk, one should diversify their sources of income to be more financially secure. Here’s why you should aim to have multiple income streams:
They make you financially secure
This is one of the biggest advantages of having side income streams. We saw that during the COVID pandemic, many people lost their jobs and had no other income to fall back on. Even in the last few years, many companies in the tech sector have laid off their employees in droves. In such uncertain times, the financial security multiple income streams provide is crucial.
More savings
The more you earn, the more you can save. You can use your savings to pay off debt, build an emergency fund for even more security, or invest in your long-term financial goals.
Speeds up wealth creation
A large portion of the extra income you earn can be reinvested, which will significantly speed up wealth creation.
You get to pursue your hobbies
Hobbies can be costly. When you are good at something, you may also feel the need to make money from it, especially so if the gear is expensive. Depending on hobbies for income can be a bit risky and it may even make you fall out of love with them, so caution must be practised when thinking about earning income through things that interest you.
Better lifestyle
You can allocate a portion of your extra income to make your life more comfortable. You can upgrade your home, travel more, or simply treat yourself to something a little special every now and then.
Work-life balance
Less reliance on a single job means you can focus on finding a healthier work-life balance. Extra streams allow you to spend more time with your loved ones, on hobbies, or just relaxing.
Types of Income Streams
Before we get into how you can create multiple sources of income, let’s first understand the three different types of incomes one can earn:
Active Income or Primary Income
This refers to the money one earns through employment. Incomes like salaries, wages, part-time jobs, and freelancing come under this category, making it the most common type of income source.
Passive Income
Passive income is money earned through minimal effort. To earn a salary, you have to continuously work, but earning a passive income does not require you to put in that kind of effort. For example, rental income and dividend stock income are types of passive income. Residual income like royalties can also be considered a kind of passive income, but they do require you to put in work before you can earn them.
Income From Investments
This type of income is also called portfolio income as it comes from investments such as stocks, bonds, and mutual funds.
Step-by-Step Guide to Creating Multiple Income Streams
Here are a few steps you can take to start generating multiple streams of income:
Step 1 – Assess your current finances
Before you start, understand your financial situation by taking stock of your income, expenses, savings, and debt. This should help you create a budget and also allow you to identify areas where you are spending too much on non-essential items. Any cutbacks you make can go towards your savings or debt repayment.
Step 2 – Define your financial goals
You’ve got to know where you’re headed. Your goals guide your financial journey. Clearly outline the financial goals you’d like to achieve in the short, mid, and long term. For example, your short-term goal could be paying off a personal loan, and your long-term goal could be saving for a comfortable retirement. This should give you a good idea of the extra income you need to generate and help you stay focused as you build your income streams.
Step 3 – Research different ways you can earn through interests
You might have to assess what you’re good at first, so begin by assessing your skills and interests. For example, if you’re interested in music and have some talent for playing an instrument or singing, you can explore performing at local cafes or pubs. Many venues look for live entertainment, and this could be a fun way to turn your hobby into an income stream. Similarly, if you are good at writing, you can think about freelancing as a writer. Not only does this give you an income stream, but also allows you to do what you love.
Step 4 – Assess your risk tolerance, and invest
Investing is one of the most popular ways to earn an extra income. Start by understanding how much risk you’re comfortable with and what your financial situation allows you to take. Not all investments carry the same level of risk, so understanding your financial situation and risk tolerance is vital. Many investment vehicles such as stocks, bonds, mutual funds, and real estate can help you generate a regular income, but each comes with different levels of risk and reward. Do your research before investing, and consider getting help from a financial advisor who can give you personalised and unbiased advice.
Step 5 – Start small and scale up slowly
Managing multiple income streams requires patience, hard work, and efficient time management. If you strain yourself too much you can easily burn out, which defeats the whole purpose of building financial security. It’s important to pace yourself and not take on more than you can handle. For example, if you are working gigs, start by doing so on weekends. Finding the right balance between your main job, personal life, and side gigs is important, but it will take you a while to get used to it, so start small.
Step 6 – Reinvest your extra income
You’ll feel intense urges to splurge the extra cash you’ve earned, and it’s completely normal to feel that way! After all, you’ve worked hard for it. However, it’s crucial to have self control and consider reinvesting a portion of that extra income. Think of it as paying your future self the money in advance.
Ideas for Multiple Sources of Income
Here are some ideas that can get you started:
Investing
Some assets such as stocks pay out dividends, which can be a source of regular income. Before you start investing, however, educate yourself about the financial world or have a chat with a financial advisor because it’s quite easy to lose money in the stock market as well.
Freelancing
You can use your skills such as coding, writing, graphic designing, and painting to find freelance work on various websites.
Tutoring
If you are good at any subjects, you can offer tuition classes to kids in your neighbourhood or even tie up with companies that offer online classes.
Consider investing in REITs
Real Estate Investment Trusts (REITs) are assets that invest in real estate and can give you a steady stream of rental income and long-term appreciation.
Create online courses
Websites like Coursera and Udemy make it easy for you to share your knowledge with a global audience. If you are knowledgeable in any specific field, you can create a course and get paid.
E-books
Similarly, you can write your own books and publish them digitally to earn an income.
Use your hobbies
If you are a photographer, baker, or guitarist, you may have invested a considerable amount of money in gear and equipment. Why not turn those hobbies into a side income? Make use of your skills to generate extra income, and the best part is that it won’t even feel like ‘work’ since you will be doing what you love.
Start a blog, podcast, or YouTube channel
You can also share your knowledge or experiences through these popular mediums and earn money through tips and ads.
Look out for gigs
Driving cabs and delivering food are becoming increasingly popular among individuals looking to earn some extra cash.
Create an app or a game
If you are good at coding, you can make your own applications and publish them on the Play Store or App Store and earn revenue from ads.
Peer-to-peer lending
Online P2P platforms such as LiquiLoans are also gaining popularity as a way to earn passive income. These platforms connect borrowers who need loans with investors willing to lend money. By lending money you can earn an interest for a specific period before you get your principal back. The borrowers have a high credit rating which reduces the risk of default and increases the chance that they will repay the loan on time.
Conclusion
Building multiple sources of income can be a fantastic way to boost your financial stability and work towards your financial dreams. When you create several income streams, you’ll find it’s easy to get excited and think about all the fun things you can do with that extra cash. While it’s completely fine to treat yourself every now and then, remember to keep your financial future in mind.
Of course, the more streams you have, the more you will earn, but that may not necessarily be better for you if you can’t juggle them effectively. It’s very important to take on only as many income streams as you can handle without burning yourself out. More income streams mean more responsibilities, so be mindful of your capacity to balance work with life. Once you’ve built up enough savings, think about investing in assets that can help you earn passive income, that is, money that comes in with little effort on your part.
Passive income keeps the money flowing and allows you to focus on other areas of your life. This can be done by investing in properties, where you earn monthly rent, or by investing in stocks that pay dividends. Passive income streams can provide financial security and additional cash flow without needing your constant attention.
