Here’s the story I had been told from childhood: go to college, get a good job, work hard, save money, retire and live off saved money.
Simple enough, right?
Jordan and I both climbed the corporate ladder and saved our pennies, assuming that this story would hold true for us.
But at some point, we both began to question whether that story was actually true.
Like a lot of people, I watched my mom get laid off during the great recession (Jordan and I were somehow both lucky enough to have just started careers in industries that did exceptionally well during the recession). She was single with a child in college. Getting laid off — and trying to rebuild her career later in life — kind of rocked her world. And it was the beginning of me questioning whether that story I’d been told all of my life was actually true.
After that, Jordan and I thought it would be best to make it a rule that we live off one income. That way if one of us lost our job, we’d be totally fine. That seemed like the smartest move.
Finally, after reading endless personal finance books, I realized that was only a moderately good idea. Controlling costs and saving IS great.
But even better?
Having multiple streams of income that are both active and passive.
Why you need multiple income streams
If this isn’t your first article here, you probably know that just before our son Henry was born we found out that Jordan’s mom had breast cancer. She lives in California, we live in the UK (though we’re moving soon!), and there was no way to be there for her physically.
Jordan seriously considered quitting his job to move home, but with a new baby, my income went to pretty much nothing and earning nothing didn’t sound like a good idea. Sure, we had savings, but how long would that last us? The idea of $0 coming in each month was too terrifying.
That part of our story ends well: Jordan’s dad was able to care for his mom, she is in remission, and we’ve made a number of trips to see her.
But we look at this as a bit of a warning sign. There are so many “what if’s” out there.
What if we:
- Have to care for our parents as they get older (to make it more complicated my parents are both single)
- Have health issues ourselves and can’t work (disability insurance only goes so far)
- Want to spend more time with Henry before he’s grown and out of the house and we don’t want to be gone 12 hours of each day
- Want to move somewhere else but an employer isn’t flexible
- Burn out and need a break
I mean, the list goes on and on. But basically, it boils down to this: what if we want more freedom without having to drain our bank accounts?
And that is when having multiple streams of income becomes such a great idea. If you lose one, you still have others so you don’t have zero dollars coming in each month. Think of how terrifying it would be to get laid off, knowing that your job is your sole source of income. Now think about how less terrifying it would be to get laid off knowing that you had a little bit of side money coming in that you could use to buy groceries, pay your rent or mortgage, or at the very least, put gas in your car.
Or, our situation: quitting a 9-5 job, moving to Hawaii, and spending more time with family. That’s a whole lot easier when you have at least a little something coming outside of a salary from a 9-5 job.
Millionaires have multiple income streams
Here’s the lesson that I missed during most of my personal finance education: millionaires have multiple income streams. According to this study,
- 65% had three or more streams of income
- 45% had four or more streams of income
- 29% had five or more streams of income
So it’s pretty safe to assume that a majority of millionaires aren’t just focusing on their paycheck.
The Federal Reserve’s Survey of Consumer Finances helps shed a little light on where people with a high net worth are getting their money:
|Less than 25%||25-49.99%||50-74.9%||75%-89.9%||90-100%|
|Interest or dividends||†||.1||.4||1.2||7.0|
|Business, farm, self-employment||2.7||3.8||6.6||8.2||23.3|
|Social Security or retirement||11.7||12.7||19.0||21.7||8.6|
|Transfers or other||9.1||3.8||3.5||2.1||2.5|
The higher the net worth, the less they rely on wages for their income. 18.5% of their income is passive from capital gains, interest or dividends and 23.3% is from business, farm, or self-employment income.
Bottom line: the wealthy aren’t relying on a paycheck.
Our current multiple streams of income
A year ago we realized that while we could live off Jordan’s salary and save what I earn, that was just the first step to creating our ideal version of financial stability. But that wasn’t where we should stop: we wanted more control. And that control would come from having multiple income streams.
I decided to start freelance writing because going back to consulting work with a baby just wasn’t going to be easy schedule-wise. I took the course Earn More Writing (read my review here), and with a handful of hours each week I started building up my income from scratch. My income is definitely variable — and if I don’t work, I don’t get paid — but it’s enough to cover our basic living costs if we’re careful. I also work approximately 20 hours per week writing because I’m trying to balance time with Henry, writing, and other creative endeavors.
If I could go back in time to years ago as I was still employed in a 9-5 (which was really more like a 7:45 – 6:30), I’d tell myself to spend five hours a week writing for money. What a difference just a few hours can make.
Four years ago we became accidental landlords. We never thought about owning rental properties, but we decided to buy a home in the US that we could move into when we moved home. We decided to rent it out in the interim. We loved our tenants and never once raised the rent, so we were basically just charging enough to cover the costs. We somehow didn’t realize this could be a cash flow opportunity.
They moved out last summer and we took the opportunity to up the rent 20%, to be more in line with the market rate. While we don’t make much, it would be enough to pay for us to eat if we needed it to.
With Jordan leaving his job, we’re considering doing a 1031 exchange to buy a rental property in a different area that would provide more of a cash flow, but we’re just at the beginning of researching that idea. But we now understand that if we make the right choices, rental income could play a significant role in creating multiple income streams.
You’re reading this site (thank you!) and we make money off of it. I don’t monetize it that much because I’ve been a little indecisive about how I want to do that. But for now, I earn a little affiliate revenue and sponsorship revenue from things that I actually use (for example, the writing course that I took or this free tool I use to track my money in one place). While I definitely earn the least from this site, it’s my favorite thing to spend time on and it needs more attention.
Interest, dividends, and capital gains
This is truly passive income and we currently don’t use it. We automatically reinvest any interest and dividends so they can continue compounding.
Creating multiple income streams for yourself
Now, it’s your turn. We’re just going to talk about active income streams right now because I have a list of passive income streams right here.
While you have to find the time to create an active income stream, this can often be the easiest place to start. Creating just one more income stream, even if it’s very small to start off with, means that you are inching that much closer to creating a solid financial foundation for yourself and creating an option for financial freedom that you may someday want or need.
Use complementary skills
What is someone paying you for right now? Or what have they paid you for in the past? You’ll likely find someone else who wants to pay you for those skills. Figure out what you can offer, and then go find your first freelance client.
Do something that interests you
No one paid me to write about money before I decided to start writing about money. Sure, I had some knowledge from my CPA, but that’s kind of a stretch. I was interested in it, so I started writing about it. And that interest has now turned into enough of an income stream that I’m able to support our most basic living expenses.
So what interest you? Writing? Design? Social media? Some things pay more than others, but can you start earning some money based off your skills quickly.
No experience required for this one. When we had a stash of excess books, Jordan tried his hand at selling old textbooks online. Now that we’re moving and getting rid of everything, we’re trying to sell everything we own. Other people might have luck finding old furniture, fixing it up, and re-selling it to a local buyer. These may never turn into permanent streams of income, but they’ll get you started down the path of making money outside of your job and may lead to other, more permanent income ideas.
Erica Gellerman is a CPA, MBA, personal finance writer, and founder of The Worth Project: personal finance and family travel. website. Her work has been featured on Forbes, Money, Business Insider, The Everygirl, The Everymom, and Lifehacker. When she's not writing about personal finance you can find Erica exploring Europe from her temporary home base in London.
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