Create Multiple Sources of Income

When you’re totally dependent on a single source of income, typically a job, you are not free. You are forced to accept terms and conditions in order to keep that source of income. If you want to be in control, to feel powerful, to live on principle rather than work for money, create more income sources.
photo credit: me and the sysop

The number and types of income are inexhaustible, limited only by individual creativity and hard work. The most common are listed below. You could build several income streams all at once, or choose to work on one until you get the hang of it, then proceed to the next.

You should also learn to distinguish between active and passive sources of income. Active income is money that you work for by ’selling’ your time. Passive income is money that comes to you from your assets even when you stop working.

1. Part-time work

While this form of income is active and I wouldn’t recommend it for the long run, it is attractive in the short run because it pays at once. When you want some instant cash, there are few options, legal ones at least, that beat part-time work.

Ideally you should choose part-time work that builds skills in areas that are useful for your full-time job. Or that will look good on your resume should you decide to switch jobs or careers in future. You could also work in an area that you’re interested to start a business in, to learn about the industry first-hand before you strike out on your hand. Essentially, don’t just work for money that does not last. Work to build an asset – yourself – for the future.

2. Part-time business

This is better than part-time work in the long run because you are working to build an asset for yourself. While it starts out as an active form of income, it has the potential to become passive over time, once your business is up and can run with minimal effort on your part. Or you may eventually choose to quit your job to run your business full time. Of course there is no guarantee that your business will take off, which is why this option has both the highest risk and the highest potential return.

To succeed in business, you need passion. You have to find something that makes your heart sing, and where the hours fly by without your realising. Don’t do something that you think can make money. Do something you love, and the money will come. And even if the money doesn’t come, you will have spent part your life on something that meant something to you. That counts for something.

3. Dividends

This is the most accessible form of passive income for most people. There are affordable online trading options and a plethora of stocks, funds and indices. The upfront capital required can be large or small depending on the financial instrument you choose. Bear in mind that while you will usually make money over a long enough timeframe, the market can be brutal in the short run and you must be able to stomach paper losses in the meantime.

If you choose to invest in specific stocks or funds, be sure to do your homework. There are so many choices that it’s really a shot in the dark whether you pick a good one or not. If you don’t have the time or inclination to do your own research, consider hiring a fee-based professional whom you trust.

Personally I shy away from funds because there’s too much that goes on behind the scenes that I don’t understand and have no control over. I’ve had some successes in picking individual stocks, and this is because I read industry journals, company annual reports and basically did my homework. Now I simply buy the market index since that requires much less research and monitoring and frees me to do other things.

4. Rental

This requires a lot more upfront capital, and is a good idea if you’ve worked for a while and have built up some savings. You are also more restricted geographically as you’ll want to buy properties near where you live so that you can manage them more easily. You can also invest in other countries but again do your homework as you’ll be dealing with porperty and tax laws that you may not understand. You’ll also need a trusted person in that country to manage the property for you.

The upside is that this form of passive income is relatively stable. Once you find a good tenant, you are assured of a regular income stream for the next few years. If you treat your tenant well, you may also earn his loyalty in renewing the contract or providing referrals in the event that he has to move out. The other advantages of investing in property are leverage from using banks’ money and not just your own, and appreciation of the value of your property over time.

Make sure that after the mortage, taxes, maintenance and other expenses are taken into your account, your net cashflow from the property is positive. If not, walk away from the deal. After all, you’re trying to create a source of income here, not an expense.

5. Private deals

If you have a large network of friends and business associates and spread the word around that you are looking for good investments, you may have access to deals that are not available to the general public. These include active or sleeping partnerships in new business projects, equity stakes in an existing concern, participating in the launch of a venture capital fund and so on.

You need to be financially literate and savvy about the way the world works in order to evaluate such deals. While some deals can return thousands of percent on your investment, you could also lose every cent. Trust in your partners is an important factor here. A sensible maxim to use is: when in doubt, don’t.

6. Intellectual property

Royalties are another source of passive income. If you have a knack for invention, or a flair for writing or music, this is a good option. Not only do you get to exercise your talent and share your gift with the world, you get paid everytime someone buys your book, or a radio station plays your song, or a company buys and uses your patent design. If you are well-known enough that your name is considered a brand, you could also let others use your name for a fee.

The best thing about generating income from your ideas is that ideas are free. They only require an investment of your effort. The downside is that an idea itself has no value unless people want to buy it. So you have to get good at marketing your ideas, or find a niche where there is a ready demand and fill it.

Start working on the above sources of income, or design your own sources. While some streams of income will be small at first, they may grow over time. And even if they don’t, a dollar is a dollar and one dollar is better than no dollar, right? The key here is that you’re not at the mercy of just one source of income, but have several to fall back on. That itself will give you an enormous sense of freedom and control.