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I thought today we’d talk about little bit about how having multiple income streams can help to fortify your wealth as you continue your path toward financial independence.
From the time I was six years old, my mom raised my brother and I as a single mom and did a pretty good job if I do say so myself! 🙂
One of the things I remember as a kid was that we each had our own savings account at an old savings and loan bank. We had the little books that they would stamp anytime we made a deposit.
Although we didn’t really understand it too much, we did watch our small savings accounts continue to grow. I’m guessing we were probably earning a good 10% in the early to mid-80’s (yes, I’m that old!) and you could just watch your money slowly increase over time. Man, if this went on forever, we’d be set!!
Boy, how the times have changed! Nowadays, it’s not unusual for a bank to give you 0.01% in interest. If you go with an online savings account like Ally Bank, you might be getting 1% which, by today’s standards, is actually really good for a savings account.
In other words, saving in an online savings account like Ally is a great place to put your emergency fund (which you definitely want to have in place). However, it’s not a great place to keep your retirement funds since 1% isn’t likely to even keep up with inflation. Your money you have in there would slowly become less and less valuable over time making it a bad avenue for stashing the bulk of your cash.
So the good news is that my mom taught us the importance of saving. However, we never expanded much further than that. We were taught to be savers, which is better than being taught that money doesn’t matter, but it’s difficult to get far by just putting your money in the bank.
In fact, the sometimes controversial Robert Kiyosaki takes it a step further to say that savers are losers and I can’t say that I disagree with him. You’ve got to find alternative places to put your money to get a better return.
The stock market?
The first place that most of us think of for a better return on our money is the stock market. And it’s absolutely true that the stock market can give you a possibility of making a lot of money if you’re careful not to try to time it or beat it.
On average, you could see a return of an average of 7% on your money over time. Not only that, but a lot of us have employers that offer matching programs on our 401(k) plans. That free matching money alone can make 7% seem like nothing!!
So yes, you have the potential to make a good return on your money to help make it last.
But the important part of that sentence is the word potential. There is also the potential that a number of things could go wrong putting your money and your retirement plans in a very dangerous spot.
The market could crash at the wrong time. If you’re planning on quitting your job and the market completely tanks around that time, you could really be up a creek. My friend, Mr. Tako talks about this in a recent article of his titled When Is The Best Time To Quit Working?.
I personally hate the stock market. I don’t trust it at all and think it’s just one big Ponzi scheme. But I have a hard time passing it up considering the impressive match I get through my employer. Not only that it’s just designed to be too darn simple to invest in it in the first place.
So how do you help protect yourself against having all your eggs in one basket?
Not the kind of crap diversification you hear about from all the financial “gurus” out there… domestic stocks versus international stocks, tech stocks versus banking, large cap versus small cap – that still leaves everything in the pot for the greedy Wall Street hoodlums to make your money disappear at the drop of a hat!
No, I’m talking about diversifying by finding other income streams to help grow your wealth and give you more stability.
I’m still a huge advocate of real estate – in particular, rental property. In The 4 Ways to Make Money with Rental Properties, I talk about some of the major advantages of owning rentals and how they can provide better wealth for you and your family.
I currently have a single-family house and a duplex that we are renting out. We’ll be buying another duplex in the next year and then probably 1-2 more over the next few years after that before I quit my job.
Rental income tends to stay relatively stable and trend upwards over time. That means that when the stock market has some rough years, we should still have a nice steady stream of rental income coming in to help carry us.
When I think of different income streams, this is one of my favorites. Not only that, but it gives us something tangible to pass onto our daughter when she’s older.
Owning a Business
People like the feeling of security. That’s why there are so many employees and not as many employers out there. Knowing that you have a steady paycheck definitely makes it easier to sleep at night.
However, that comfort usually comes at a cost. That cost tends to be freedom and income potential. Chances are, if you’re very skilled at something, you could be making more money doing it on your own rather than working for someone. And when you work for yourself, you have the freedom to make your own schedule (to a point, depending on the field).
In Think About Working for Yourself, I talk about some of the benefits of working on your own. You could (and probably should in most cases) start the business while you’re working your regular job. As it grows and gets to the point where you can quit your day-job, now you have the opportunity to decide if quitting the 9-5 is what you want to do.
During that time when my mom was pulling single-mom duty, she owned an answering service (along with a couple other people). Raising kids by yourself is one thing, but throw in there running a business, and I don’t know how she did it! When we got older, she sold the business and a number of years later, got remarried and started a new and different business with my step-dad which has been going strong for a couple decades.
However, the business of theirs has a major weak spot… they can’t step out of it. The business is centered around them. If they stop working, the income stops. If you’re not relying on the income, that’s not a big deal, but if you are, that’s a trouble spot.
I’m watching them getting older and they aren’t going to be able to sustain the work they do at this business much longer due to the physical work involved. But they don’t have enough saved so that puts them in a tough predicament. If they had brought on employees and trained them to take over the business one day, they might have been able to sell it to them. But that never happened and now they’re stuck in the spot they’re in.
I’m in a similar situation, but my ventures (outside of real estate) aren’t designed to grow into a huge business. Take this blog for instance. I hope that it will bring in some additional income and continue to get bigger over time. I would love to continue to write once I quit the 9-5 and having a little extra money coming in from it would be great.
However, I’ve got multiple income streams, so I’m not worried about this being my bread and butter. For me, my real estate LLC is a much bigger focus.
Owning a business that you could step out of though and still continue to pull in income is the ultimate business to have. If you’re considering starting a business or already have one, try to think about ways that you could start to grow it so that you can eventually remove yourself (either partly or fully) from the picture and still reap the rewards.
Royalties and licensing
Although sometimes a tougher avenue to pursue, royalties and licensing could be one of the nice income streams in your portfolio. Generally, they tend to require the most work up-front and then less (or sometimes different) work from there.
Royalties are payments made to someone who owns an asset for the right to use that asset. They can be for anything from books to music to art, software, and more. So if a band decides they want to play “Whole Lotta Love“ in concert (which Led Zeppelin wrote and owns), they must pay Led Zeppelin a royalty each time they play it in concert.
Licensing is similar in that you might have – say an invention you created – and you decide to let someone use it for a duration of time. When Disney puts out a movie involving a new princess, toy manufacturers work with Disney to gain licensing rights to put out every god-awful toy they can think of relating to that princess. Cut me some slack on this example – I have a young daughter! 🙂
This is where a good invention or book or song can have the potential to make you some decent money for a really long time. Keep in mind though that it’s hard to find the right treasure to pull in a ton of dough.
Years ago, I wrote a technical book. I maybe could have sold it to a publisher, but I wanted to retain all the rights to it and get higher royalties, so I formed my own publishing company and brought on an on-demand printer. It was more work on my end, but it kept anyone else’s hands out of it and gave me an opportunity to make more money on each book sold.
On the other side though, you lose the marketing that a big book publisher might be able to help with. All-in-all, I’m happy with the direction I went and sold more than 3 times my goal on that book.
Since then, I wrote another technical book. I did the same thing and that book is still on sale today. Ironically, I can’t market it to you (my widespread audience) as it would obviously give away my identity.
I did decide though that I’m not going to write another technical book. The payoff, though pretty good, doesn’t really justify the time I spent writing and creating them, especially since a technical book has a much shorter shelf-life than other books out there. Once I quit the 9-5 though, I will likely do a kids book with an indefinite shelf-life and then I’ll be able to shamelessly market it to all of you! 🙂
Multiple income streams can solidify your financial independence
These are far from the only income streams available out there for you, but hopefully it can help get you thinking.
My point to all of this is that you need to be very careful with what you do with your money. If you leave it all in your savings or under a mattress, inflation is going to erode everything. If you put it all in the stock market, you really are taking a gamble of sorts and leaving all your eggs in one basket.
Start to look at other opportunities to help spread the risk and also to help grow your money.
Are multiple income streams part of your retirement plan?
Thanks for reading!!