If you’re thinking about diversifying your income, you’re probably asking yourself: “How do I diversify my income?” It’s actually a very straightforward method, and many of us have already created it Multiple sources of incomeWe don’t realize that.
The goal of creating multiple income streams should be to maximize your potential in each category available to you. If you’re just starting out, it’s not really reasonable to expect you to generate a lot of rental income.
However, if you start maximizing your income generating potential with your base salary, you will find yourself with excess income that you can reinvest to generate additional income streams using different combinations of assets.
He remembers, The average millionaire has 7 different sources of income. seven! Here are the most common.
Basic salary
For most people, their basic salary is their main source of income. In fact, I think everyone starts out that way (if that’s not you, I’d love to hear your story!). The goal is to maximize your base salary to the point where you generate enough free cash flow to reinvest in secondary sources of income.
How do you do this? Well, try to get the highest paying job possible! Ask for a raise! Use services, like Glassdoor.com, to see how your salary competes with others in your same job. Some companies force their employees to leave to get a raise, and then come back for another. This promotional strategy to jump into the industry is very common and can work.
Or there’s another theory for your base salary – generate enough to have a little extra cash flow, but do it in a place where you can work stress-free and have time to get involved in other projects. A good friend of mine has this setup – he employs 10-5 people and makes $50k a year. This allows him to easily cover all of his expenses, but the shorter hours and flexibility of his job allow him to pursue his secondary income-generating ideas!
Either way, the great thing about your base salary is that you can usually get benefits, like health insurance, that really protect you while you pursue your other ideas!
Secondary salary/husband’s salary
No matter what project you take on in life, you need a team. I’m a big believer in teamwork, even if it’s just to get ideas off track, or have someone tell you you’re off track. For many individuals, that person is their spouse, who also brings some income diversity to the table. Just like I mentioned above, if your spouse has income, try to maximize it.
I would like to introduce some caution here: if your spouse works at the same company, or in the same industry as you, You are not diverseAnd if something happens, you could be in a world of hurt. Companies are going out of business, and companies are laying off employees. There is nothing wrong with working together, but realize that you are not diversified and should try to maximize other sources of income as a result.
Once you and your spouse’s salary are maximized, you can distribute this surplus into other groups to create more sources of income.
investment
After employment, I think most people get income diversification through investing. It is important to look at why we invest: because at some point we plan to use this money for something. For most people, it’s saving for retirement, and investing is done through vehicles, such as a 401(k) or an IRA. But investing isn’t just about storing money for rainy days — that’s what an emergency fund is for. Investing is about having enough capital to generate income.
The investment generates income through dividends, interest and return of capital. You really want to maximize the first two, and stay away from return on capital as much as possible.
Think about it. If you’re saving for retirement, you’re trying to save enough in an investment to generate enough income to replace your base salary. Let’s take my friend’s example above: $50,000 a year. To generate $50,000, you would need to have approximately $1,700,000 saved, and be able to generate 3% cash flow on that money (which is reasonable if invested in dividend-paying stocks).
You can also withdraw from your capital if necessary, but this represents a return on invested capital, and if you continue this for a long period of time, you risk exhausting your resources.
It’s also important to invest versus just save, because saving cash won’t grow fast enough to be useful to you. You need to invest in assets that will grow. See the average return by asset class below (and notice how your wage growth isn’t keeping up well either).
If you are ready to start investing, Check out our list of the best places to invest!
Real estate rental
Purchasing a rental property is another popular way to generate income for an individual. It is very similar to an investment, in that you take an amount of money to buy the property, and the property returns a cash flow – rent. You have expenses associated with this that are different from investing, such as a mortgage, utilities, property taxes, etc., all of which must be taken into account when calculating the return on rental properties.
Rental properties have tax advantages that an investment does not, but I will get to that later.
The problem with rental properties is that an initial capital outlay is required to get started. Most people who are starting to diversify their income streams do not have a 20% down payment to purchase an income-producing property. This is why this is usually done later in life, almost like the subject of Advanced Multiple Income Stream.
However, there are ways to do this early, such as starting with real estate crowdfunding. With real estate crowdfunding, you can become a limited property owner for less money. It’s a great way to start investing in real estate.
We recommend the following:
You can start investing in real estate with as little as $5,000 on platforms like RealtyMogul. They have different commercial and family properties that you can invest in. Check out our full RealtyMogul review here.
Another similar platform is Fundraising. They only have a $10 minimum to get started and offer a variety of options which we love too! Fundrise has really been a great passive income investment over the past year! You can read our full Fundrise review here.
If you have more to get started, check out Wasl. With Arrived, you can purchase turnkey single-family investment properties directly online! Check out the link here >>
Finally, you can consider investing in farmland in the United States. AcreTrader is a company that allows you to own farmland and collect rents as well as appreciation. Check out AcreTrader here.
The College Investor is a non-client promoter of Fundrise and AcreTrader. College Investor receives compensation if you open an account with Fundrise or AcreTrader after clicking the link on this page.The College Investor is a non-client promoter of Fundrise and AcreTrader. College Investor receives compensation if you open an account with Fundrise or AcreTrader after clicking the link on this page.
Online business/hobby business
The last most popular stream of income is creating a side hustle. This business can be online or offline, and I call it “hobby business” because it usually takes a form related to the owner’s hobby.
For example, if you’re tech savvy or enjoy working online, you could sell on eBay, create a website (like I did), or promote your services through a site like Fiverr.
Our friend Julie Berninger sells Etsy prints for up to $1,000 a month — and she created an e-printers course to show you how to do it, too! Check it out Electronic publications selling course And learn how to create items online to sell on Fiverr and Etsy on day one of this proven online course.
Don’t know where to start?
Here’s a list of 50+ side projects you can start today. Or how about a list of 35 different passive income streams you can create.
Create multiple sources of income
The point is that you can diversify your income in different ways. You can basically choose one from all of the above categories, and create a highly diversified income portfolio.
The other point is that it is very easy to get started. You don’t need to be super rich, and you don’t need a lot of time to get started. To say it doesn’t take time is a lie, but you don’t need to mention anything above your life. You can work at your job, invest your excess income, save to buy a rental property or rent a room in your current house, and you can start an online side gig without putting in any effort.
The reward from these activities will be financial freedom!
What do you think are the most popular sources of income? Have you started your second income stream yet?
