Multiple revenue streams kind of sounds like board room jargon that is being thrown around by senior execs that didn’t do their homework and are trying to fake through a presentation. But in reality, it just refers to the number of different ways you make money. Have a job? That’s a revenue stream. Drive Uber or Lyft? Revenue stream. Rent a property or a room in your house? That too. Run a successful blog? You get the point. This week’s post is about why having multiple ways of making money is important and how different ways have helped us on the journey to FI.
A Google search about sources of income returns a few good articles saying that a typical millionaire has 7 sources of income. I have not dug too deep into any sources, but that number seems to be in the ballpark. How about you? Well, for the majority of my life I had one, or none. That one was earned income. Go to work. Get paid. Spend money. Go to work. Get paid… you get the idea. The obvious danger of this is, what happens when you lose or want to change jobs? What happens is that you stop earning income. Even if you have had a high-paying job and have saved prodigiously for years, unless that savings is earning you more money (passive income), then you are spending more than you are making and will eventually go broke. No fun.
So having multiple sources of income is great, but how many jobs can one person have? Well, you may have a secondary source of income and not even realize it. Double income families naturally have, well, two sources of income. I will talk a little bit about some of the specific benefits we have noticed from multiple sources, but the obvious one here is that if one partner loses a job, there is still money coming in. Another typical source of income is interest income. Yes, that 0.01% coming from your savings account is technically an income stream. A better example might be a portfolio of government notes or peer-to-peer lending or some other type of fixed-interest investment. Below is a run-down of some of our favorite types of income.
This is one that is a favorite of water coolers and barbecues. There are times where it feels that everyone is a real estate expert except for you. While there are many, many, many blogs on how to successfully invest and profit from real estate (one of my favorites is www.biggerpockets.com), I think the formula for income is pretty simple. Find a property that can rent for more than it costs to own. Simple. The part that we have found takes the most time is to truly determine the cost of ownership. Are you confident on what type of rental rate you can get? Have you accounted for vacancies? Are you taking off a bit for inevitable maintenance repairs (capex)? Are their condo dues? Don’t forget taxes. Are you going to self-manage the property or do you need a property management company? The list can be very long, but it is good to remember that none of this is advanced calculus. It’s addition, subtraction, multiplication, and division. Sitting down with a spreadsheet for a weekend will get you most of the calculations you need to make a good evaluation of a property. It does take a bit more money to get into a property than other potential income generating activities, but even that is a matter of simple math. There is no need to buy an investment property in the “best” part of town. A $100,000 property in decent shape that rents for $1,000 a month is far more lucrative than a $275,000 property that rents for $1,500 a month. Use an online calculator to see what your monthly payments might be (I often use www.mortgagecalculator.org) and keep adjusting the down payment to something that fits your level. I will probably do a much longer post on RE investing later, because we love it, but for now, it is easy to see how this could be a separate form of income.
Another fancy pants word, but here, I am just referring to the money made when a company pays a certain portion of their earnings back to the people that buy their stock. There is also a lot written about whether or not and when one should hold dividend producing stocks, but again, this is an introduction. In a nutshell, if companies have more money than they have places to spend, they give it back in the form of dividends to their stock holders. This can also be a sign that the company has no more good options to grow and this can be a negative thing long-term, but many large stable companies produce respectable dividend yields because they ARE stable and are not investing huge amounts into their growth. This site does NOT endorse any specific companies, but an example of some high-yielding dividend stocks can be found here. Dividends can change or go away completely, but you can always find new companies, or invest in EFTs (exchange traded funds) that hold a collection of dividend producing stocks and they will readjust the portfolio as needed. They will also take a fee for that, but you can do your homework on the cost analysis. I did not include any gains from the stock price going up (capital gains), because while you can sell and take the profits as income, I am trying to focus on more regular income producing investments. And while dividends will never be negative, stock prices can and do go down. So even if the stock price of a dividend producing stock goes down, they can still pay out the dividend. And as far as how to get started, you can open a brokerage account online for $1,000 or so. You are not going to see huge returns on that amount, but it is all about the percentage and investing now is ALWAYS better than investing later. No matter how small the amount.
When I was seven, my father put me out on a golf course to sell lemonade while he played the front and back nine. To this day I have no idea what happened to the money I made, but I assume it went to subsidize the green fees. In today’s world, side gigs are so plentiful, it’s almost a shame not to have something. Driving for a ride-share services, creating items for sale on sites like www.etsy.com, arbitrage selling on ebay or taobao (in Chinese), doing project work in your specific field (website development, graphic design, online marketing). There are even sites where you can get paid for data-entry or survey taking. Not much, but it is something. And if you combined the extra income earned from these side gigs with real estate or stock purchases, you can see how this can start to add up fast.
I will not harp on this one for too long, but yes Mr. Franklin, a penny saved IS a penny earned. See my post on opportunity costs for a more detailed breakdown, but every dollar you don’t spend and reinvest into something that does make you money is, in my mind, a form of income.
What are the benefit?
This post is getting long, but I wanted to talk briefly about two of the main benefits we have seen from having multiple sources of income.
Peace of Mind
Knowing that there will always be SOMETHING coming in is such a reassuring feeling. It may not be enough to pay all the bills, but it feels good to know that if your job goes away or if you can no longer work, there will be something there for food or to help with shelter. I have been there before and having NOTHING coming in is very scary. Add in the stress of supporting kids or other family members and NOT having a few gigs on the side sounds crazy. I won’t get into this too much, but the peace of mind has also contributed to the health of Mrs. Sloth and I’s relationship. We simply don’t fight about money the way we used to. It’s much better to fight about what to do with money that about not having any.
Everybody hears about the miracle of compound interest, but I’m talking about something a little different here. If you have a job, you save you invest, etc. you have a path a certain level of financial freedom. Well what if you continued to spend the same way you always had, but took on a side gig or some other source of income and reinvested that money into something? Have a look below.
So you can see. In the modest example, making just an extra $1,000 a year and saving and investing it, doubles the principal and the interest. It may seem like common sense, but the fact is that after only 5 years, with a second income stream of only $1,000 a year ($83 /month), you would have an extra $6,468. There is a lot you can do with that. Imagine if you 3 or 4… or 7 different sources!
So this sloth is done for today and is going to spend some time reviewing his own revenue sources. Have a great weekend and please LIKE, SUBSCRIBE, FOLLOW!