Secure Multiple Streams of Income
Do you want to make money? Well what you gonna do about it?
I think before we even start talking about the what, we should understand the how. How many ways are there for you to make money? Traditionally, most financial advisers would tell you that there's 3 forms of income.
The 1st form is what's called active or earned income; where you exchange your time for money. We all know this form of income all too well. Your 9-5 grind is the most common form of active income that we earn on a daily basis. An easy way to distinguish if a particular income is considered active income would be to ask yourself, “Do I get paid only for the time that I work?” If the answer is yes, then you’re earning active income.
The 2nd form of income which is less common but definitely raising in awareness is passive income. You’ve probably seen those ads on YouTube and Instagram about making money when you sleep. Well... in layman's terms, that’s exactly what passive income is. Any form of income where you generate revenue even when you aren’t actively working is considered passive income. This could be rental payments from a property you own, royalties from a book that you’ve written, or even money you make from a business that is managed by other people. As long as there isn't a direct exchange between the amount of time that you work and the amount of money you make, you're making passive income.
The last form of income is called portfolio income. The IRS defines portfolio income as any income not derived in the ordinary course of a trade or business. This includes interest, dividends, annuities, and investment royalties. I always thought that the term portfolio was synonymous with the stock market, but your portfolio actually consists of stock/business investments, bonds, and cash accounts. The US Securities and Exchange Commission defines stocks as a type of security that gives stockholders a share of ownership in a company, bonds as a debt security that allows investors to lend money in return for a specified rate of interest, and cash accounts as highly liquid investments that are readily convertible to known amounts of cash.
Now what do you do with this knowledge? I mean I've been pretty okay earning active income. I'm not dead and I'm far from suffering. So why should I care about making more money? I'm not a greedy person. I don't want all the money in the world.
The reason you should have multiple income streams is because your active income will only be consistent if you're actively working one particular job. The moment you stop working, your revenue ends. Now do you really want to work for the rest of your life? I know I don't!
When I quit my job in December with no other sources of income, I was left wondering how I was going to put food on the table. Reality really hit me hard. I realized how quickly active income can go completely dormant. I told myself that I'd never go through that again so I started to make a plan.
The 1st step is to start working on a side hustle. Arizona State University defines a side hustle as “A job that you do on the side of your main 9-5, that helps you to make more income.” This could be freelance work that utilizes your personal talents like being a web designer, a writer, or a photographer. This creates a solid supplemental stream of active income that you make working for yourself. The goal is to start turning your side hustle into your main 9-5 so that you can focus on yourself. (If you’re afraid of not making enough money, let that be your main motivator to work hard at what you do.)
Now that you’ve secured your own form of active income, it’s time to start earning some passive income. I know that we all don’t have the capital to just buy a property and rent it out, but luckily that’s not the only way you can earn passive income. We live in the 21st century where the internet is just one giant bank full of passive income if we only utilize it. You can start a blog where you make money through affiliate links and ads, start a YouTube channel where you can monetize every video you ever upload online, write an eBook and market it online, or create an online course where you share some of your valuable talents with others. You want to put your time into something that will continually make you money after you’ve put in the initial blood, sweat, and tears.
At this point you’ll have an excess amount of money that you should probably save for a rainy day. Why not invest that money into your portfolio where your money can literally make more money for you while you save instead of saving your money with a local bank where the FDIC averages you’ll get about 1% back every year in interest. Sounds like a great idea, but where should you invest your money? Should you put your money into stocks, bonds, mutual funds, CD’s, annuities, or many more? How do you know where to invest your money when there’s so many options?
The answer is diversification. The SEC defines diversification as the practice of spreading money among different investments to reduce risk. To properly do this you need to determine your risk tolerance (How much you’re willing to lose from your initial investment in exchange for higher returns) and your time horizon. (the amount of time you plan on investing) KansasMoney.Gov suggests meeting with a financial adviser if you’re having a hard time determining how to diversify your portfolio.
They also suggest that before you begin investing, you 1st assess your current financial situation by calculating your current net worth (Your net worth is the difference of your assets and your liabilities) Then you should create attainable goals of how much money you want to have by the end of your time horizon. Finally, you also should calculate how much money you can comfortably put aside for investments and savings. This is called your savings rate.
Now once you’ve done all of this, you’re ready to start investing and saving your money much more wisely than you’ve ever imagined. Be sure to have a good mix of stocks, bonds, and cash equivalents. Now I understand what they mean when they say "Don’t put all your eggs in 1 basket."
I hope that I’ve opened your eyes to the abundance of opportunities of making money and I encourage you to further research into what I’ve presented to you today. With confidence I can say that I will continuously be working on generating multiple different income streams to secure my financial future and become financially free. Now I ask you again. If you really want to make money, what are YOU going to do about it?
- Jona Hernandez