It’s never been more important to have multiple income streams. The current climate has shown us that no job is safe, so having more than one stream of income can help us spread our bets and ensure that we’re always covered financially.
This extra financial security is just one of the benefits of having multiple income streams. Here we’re going to look at more benefits of creating passive income streams, as well as some examples of different types of income streams.
Benefits Of Multiple Income Streams:
1. Financial Security
The first and most obvious benefit of having multiple streams of income is that it provides you with an extra level of financial security.
A traditional 9-5 job is the most common stream of income, but for many, they offer little control over how much money you can make and when you get paid.
Think about everyone that’s currently furloughed and receiving 20% less in their paychecks each month. For many, this 20% reduction means a serious reshuffling of their finances – whether that’s cutting back on monthly expenses, or reducing how much they can add to their savings or investment accounts.
Having more than one way to make money therefore means you don’t need to rely on your job alone for a regular source of income. If your monthly take home pay reduces, you have other income options to keep you afloat.
2. Work Less
If you have multiple streams of income, especially passive streams, you’ll find that you have more flexibility in the amount of hours you need to spend working.
If you have a variety of income generating assets you can be more selective about your working life.
You might not need to spend as much time chasing that pay rise, or working overtime. You can spend more time doing things you love, focusing on more exciting ways to make your own money, without worrying if you have enough to cover this month’s expenses.
3. Reach Your Financial Goals & Build Wealth
The great thing about creating more income streams is that there is no limit to how much money you can make. The power is in your hands and with time, effort and determination you can use these extra streams of income to reach your financial goals and build long-term wealth.
It has been widely reported that millionaires have up to seven streams of income, and that their millionaire mindset drives them to chase multiple money-making opportunities.
So with that in mind, here are seven different types of income streams you could create to increase your earning power and build long-term wealth.
Types Of Income Streams:
For most people, a salary is the main source of income.
When it comes to your salary, the ultimate goal is to earn enough money so that you can then pursue a secondary income stream. For example, being paid well might mean you then have enough spare cash to start a business, or save up for a rental property.
There are lots of ways you can make sure you’re getting the best pay possible. You could spend time improving skills necessary for your role. You could switch jobs to a better paid position. Or, you could negotiate your salary with your current employer.
If you successfully negotiate a pay increase, avoid lifestyle creep and instead think about how the extra money you’re earning can work to make you even more money.
2. Business Income
The next type of income stream is business income. This is where you earn extra money in exchange for a product or a service.
There are lots of different ways you can go about earning money as business income.
You could freelance, you could create bespoke items and then sell them, you could offer your services as a coach, or you could even start a blog, Instagram page or Youtube channel.
We’ve written a whole blog post about 16 different side hustle ideas to get you started.
Having this type of income requires a lot of time and effort, but has the potential to make a lot of money. Think about your skills, and then identify a way to create something valuable that people will pay for.
And remember, this doesn’t have to be a multi-million pound business. Even if you only make £14 a day from a side business, that’s still an extra £5K a year added to your income.
3. Interest Income
Another type of income stream is interest income.
This type of income describes any returns generated from accounts that pay you interest.
For example, your savings account might pay you interest, or you might have investments that pay some form of interest.
4. Dividend Income
If you’ve invested in stocks before, you might be aware of dividend income. This is a type of income stream where you earn by owning shares in a company.
This works when companies choose to return a portion of their profit to shareholders by paying it out via dividends, which can be paid as cash, shares or a combo of both.
For example, you might own 50 shares in a company that decided to pay £2 in annual dividends. You would then earn £100 a year, just by holding onto that stock.
When it comes to earning dividend income, make sure you do your research and assess where your money is best invested. There are various ways you can choose to invest your money and a number of great investing apps that can help you get started.
5. Rental Income
Another type of income is rental income. This is where you earn an extra income through renting property to someone else. This could be an apartment, or a commercial property that other businesses use.
This type of income can generate a large amount of money, but it also costs a lot of money to set up.
For example, if you wanted to buy a £200K house to rent out, you’d need to fork up a 25% buy to let deposit. You’d also need to consider other costs involved with being a landlord, like getting gas safety certificates, electrical inspections, letting agent management fees, landlord insurance, and so on.
Consider your options carefully and calculate your returns. If you don’t have enough cash to buy a second property, think about letting out a room in your current property, or even buying a garage or storage space to rent out.
Whichever option you choose, remember that you’ll also have to pay tax on any profit you make from renting the property out.
6. Capital Gains:
The term capital gains is used to describe the profit you make from buying something and then selling it for more money.
You can earn an income from capital gains through different assets like stocks, property, and cryptocurrency. Capital gains even applies to items like art, jewellery, wine, coins, and stamps.
As one example, you can often make money by selling property, as it typically goes up in value over time. If you bought a house for £500K and sold it for £800K, you would have earned £300K in capital gains.
As with other types of income, there are capital gains tax rules. Find out more about capital gains tax here.
7. Licensing Income:
The last type of income is licensing income, or royalty income. This is where you earn money by selling the rights to use something you’ve written, created or invented.
For example, you might make a YouTube video. This video includes ads, that you are then given royalty payment for. You might write an article behind a paywall – you can then earn royalties based on readership.
If you’re particularly knowledgeable about a subject, you could create an online course. People are turning to digital learning to improve their everyday skills, which means you can now make money from all manners of subjects – whether that’s sewing, DIY, fitness, finance…
Diversifying your investments is widely recognized as a method of building wealth, but diversifying your income streams is just as important.
If you’re looking for ways to increase your earning potential then work towards building multiple streams of income.