Importance Of Multiple Sources Of Income

It’s incredibly important to have more than one regular source of income if you want to achieve your financial goals. this post we’re going to explain reasons why you need multiple sources of income. We’ll also discuss the main types of income sources and provide some ideas for creating different sources of income.

Reasons Why You Should Have Multiple Sources Of Income

There are several key reasons why it’s important to have multiple sources of income.

Grow Your Income

Firstly multiple sources of income streams means more potential to grow your earnings. Earnings from just one income source can be relatively limited.

A regular paid job for example, could be a high earning role but it will also have limited future upside. Pay rises are usually capped at a nominal amount – the best you can usually hope for is a few percent extra each year.

With many additional sources of income such as stock market investments for instance, the potential gains are uncapped. This additional earnings potential can allow you to reach your financial goals much quicker.

Financial Security

No job is ever 100% secure. If you are a paid employee with no other sources of income have you ever considered what would happen if you were to lose your job?

Having other sources of income alongside your job can give you a lot more financial security should the worst happen.

Freedom & Independence

The more income generating streams you create, the more you reach a step toward financial freedom and independence. Success won’t come overnight but the more income sources you have the greater the likelihood of them producing a substantial income for you over time.

This may allow enough freedom in time to be able to quit your job, giving you more free time and greater independence. Many people give no consideration to finding additional sources of income alongside their jobs, relying solely on the wages from their employers. This keeps them bound to work for somebody else’s success.

Build your own dreams, or someone else will hire you to build theirs.

Farrah Gray

Diversification

One of the reasons for creating multiple sources of income is just like with investing – it can give you diversification. If one area isn’t performing well then another stream will compensate. Just like with a regular job, being reliant on just the one source of income means you don’t have security if that income source were to suddenly stop.

7 tips to help balance multiple streams of income

Essential reading; Can money buy happiness in life?

Types Of Income Streams

The below are the main types of income streams.

Earned Income

Earned income is what most people make. It is income in the form of wages paid by an employer through your regular job.

Interest Income

Interest is the money earned on money lent out to people. One of the most common ways to earn interest income is through depositing money into savings accounts with a bank. There are additional ways to earn interest income such as with bonds and loans.

Dividend Income

Dividends are payments companies make to shareholders from their profits. Not all stocks pay dividends but many do. If you hold shares in dividend paying stocks then this can provide a regular source of income. In fact stocks are great in that they may benefit not only from dividend income but capital growth too.

Dividend income can be retained as cash or re-invested back into the stock, earning more dividends in future. Over time this can lead to substantial growth through the compounding effect – where dividends are earned on dividends.

Cash is the most common form of dividend but it is not the only way a company can reward shareholders. Learn more about the different types of dividends a company can pay.

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Royalty Income

Royalty income is what you earn when you allow somebody to use an asset that you own. This can include things like patents on your products, copyrighted work or franchises.

For example, you hold the copyright to your own book and allow somebody else to publish this. You will then receive royalty payments on each sale of the book. Royalty payments are usually set at a fixed percentage.

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Profit Income

Profit income is that what is earned through business operations from buying and selling products and services. The profit is what money is left over after all expenses have been deducted. This can cover all types of businesses from bricks and mortar retail to eCommerce stores.

Rental Income

Rental income is made by renting out something you own. This is most commonly associated with real estate where a property or room you own is rented out to tenants that pay you rent on a regular basis. It can also apply to other things you own – cars and luxury goods are other popular rental items.

Capital Gains Income

Capital gains is the overall appreciation in your assets. For instance as we wrote above about stocks providing both dividends and capital gains. If something is worth more when you come to sell it you have made a capital gain on your original investment.

Property is another good example as this allows for 2 sources of income; rental and capital gains. Lets say you own a house that cost $250,000 and are currently making a regular rental income from it. House prices have been rising substantially and it is now worth $500,000. So you decide to sell it, doubling your original investment. That is a capital gain of $250,000.

Active Vs Passive Income Streams

You may have heard some income sources referred to as either passive or active. This relates to how actively involved an individual must be to earn an income from it.

Active refers to streams of income that are more hands on and actively managed. These may have the potential to make good money but there is a trade off of more investment with your time and effort.

A regular job is probably the most obvious example of an active income source – you must show up at work and carry out your duties in order to be paid your wages. Many businesses also require large time commitments so these should be considered carefully before starting.

Passive income streams are more preferable as there is usually a lot less work involved. Although they may require research and effort to set up, they can then be left to run. Allowing you to literally earn money while you sleep.

Examples of passive income includes royalties, dividends and other forms of investments.

Whilst some income streams such as dividends require initial capital to set up, many additional income streams are completely free to set up. We’ll take a look at some ideas below.

What are the pros and cons of active vs passive income

Multiple Sources Of Income Ideas

These are just some examples, there are many more across each type of income stream. Many of the ideas listed above can be further broken down. For example, eCommerce businesses – there are many types to explore including dropshipping, white-labelling, print on demand stores and many more.

Passive income in particular has many streams including affiliate marketing, blogging and there are even passive income apps.

And if you still wish to receive earned income you can find some great online jobs.

Multiple Sources Of Income – How Many Should You Have?

There is no rule that states you should have a certain amount of income streams. Some people will advise you concentrate all your efforts to just a few whereas others advise to split across dozens of streams. However, research has found that most millionaires tend to have on average 7 different sources of income. So that’s a good number to aim for.

If you currently only have one source of income then start out by adding an additional one. Then over time you can start gradually adding to this and further diversify and grow your earnings. Just from adding one additional source of income you will begin to see the benefits this brings.

It does tend to have a snowball effect. Where the more you have the more you will start to earn. These additional earnings can then be used to fund additional sources of income, bringing even more earnings with it.

Check out these 50 ideas for building online income streams.

Multiple Sources Of Income Conclusion

Relying on just one source of income, whether it be your job or your business does not offer sufficient security. Having multiple sources of income can give better financial security, greater earnings potential and may allow you to achieve your goals quicker.

The 7 main types of income are; earned income, interest income, dividend income, royalty income, rental income, profit income and capital gains income.

Income sources can be either active or passive. Active being those that require more ongoing time and attention. Passive are those that work in the background, generating income without any ongoing intervention. Although this too requires time and effort in the initial stages to ensure it’s success.

There are countless ways to create multiple sources of income, many are free but others may require a capital investment. Among some of the popular ways to earn income online is affiliate marketing, eCommerce, dividend income and other investments.

Research has shown that millionaires on average have 7 different sources of income. So if you want to move closer to your financial goals, creating multiple sources of income should be one of your top priorities.

Find more essential reading on our blog including;

• 50 ideas for building online income streams.
• 10 investment ideas to build wealth.
• Financial lessons everybody needs to master.
• How to save money at home

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