Why It's Important To Have Multiple Streams Of Income
I have several streams of income, hence the term multiple streams of income, which I have built over the years I have progressed in my entrepreneurial ventures.
Most of the streams generate what I consider passive income for me, with many others that also generate recurring or residual income .
Why am I highlighting passive and residual income streams? Because throughout your life you will come across many income opportunities, all of which will be competing for your time, attention and resources.
And because you only have 24 hours in a day, it is important that you have clarity over what is it that you want out of your income streams, or life for that matter without getting too philosophical.
The effect of multiple streams of income works just like a snow ball that is rolling down a snow hill. The longer it rolls, the more momentum it gains and picks up more snow (income in our case) along the way.
You may have several small, medium or large size income streams running in parallel, related or completely unrelated, but they all contribute to your personal financial growth. The more streams you have, the more and faster you will expedite the wealth building process (your money snow ball).
When your wealth increases, you have more discretionary income in theory to invest in other money making opportunities, hence the snow ball effect. This is why people say that your first million is the hardest to make. The rest comes in abundance relatively easier.
That is the simplest way I can describe how multiple streams of income work.
Why Are Multiple Streams of Income Important?
There are many reasons why multiple streams of income are important, however my reasons may not be the same as yours or someone else’s. Our reasons will vary and are predicated on our end goals and objectives.
In other words, the answer to the question “why should we establish multiple streams of income” determines the importance to each one of us. The following are just a handful of reasons why I feel multiple income streams are important in my life.
During the early years of my career in Corporate America, back when I was naïve, I felt very safe and comfortable in my position. As time passed and I gained more “real world” experience, my eyes started opening to the brutal reality, the worst of which we saw in the last few years.
Truth is, very few jobs are as safe as we think. Most people, regardless of how they feel or how strong they perform are dispensable. Simply speaking, most jobs are exposed to potential downsizing. When a person loses their job, they lose 100% of their income.
For someone who relies on only one income stream (income from employment), having a solid emergency fund or savings account helps mitigate the risk of devastation. That is why a strong understanding of basic, fundamental personal finance is important not just for an entrepreneur but everyone.
On the other hand, someone with multiple streams of income has alternative sources to rely upon in the event they lose one of them such as employment.
Frugality Has Its Limits
This is where I feel my blog differs from the 7,652 personal finance blogs out there. Frugality, or cheapness, can only go so far. I mean you can’t stop paying for electricity or heat. While some are ok subscribing to what I think is a life of compromises and mediocrity, I am not.
While there are limits to how much you can cut back, there is no limit to how much you can earn. Most people focus on trimming expenses to boost the bottom line because that is the easiest and most convenient (not in my opinion) way to do it. It also helps that advice to cut back on your Starbucks is on every personal finance guru’s list.
But why not increase the top line instead? Whether you increase the top line, or trim the expense line, the impact on the bottom line is similar. Again, there is no limit to how much you can earn, but one will eventually get tired of compromises and living a life of mediocrity, or bite the tongue and accept it despite deep down inside they’d rather not.
Power of Leverage
Money makes money, we have all heard that. There is a lot of reality to that statement. When your streams bring in more money, you have more money to invest in interesting ideas and projects.
Whenever I add a revenue stream to my portfolio, I see an exponential increase in the bottom line because the other streams start to kick in a higher gear as well. How does that happen?
If you have income streams that share a similar audience, you can up-sell and cross-sell all over the place like a spider. Even if you don’t, the simple fact of having more discretionary cash allows you to reinvest back into your portfolio to grow it bigger .
Choice and Selection
When you have multiple streams of income, you have the option to work on whichever stream you choose to when you wake up in the morning. This alone makes the whole concept of multiple income streams well worth it in my opinion. Life rarely gets boring when you have a plethora of choices.
Some people choose to feed the winners and starve the losers. That is also quite alright. The point is that you have options, and not many people can say that. These options also reinforce diversity in your financial position because when one stream dries up, you have several others to count on.
Building Income Streams Gets Easier Over Time
Remember the first million is the toughest to make? The same goes when establishing multiple streams of income. Your first one is the toughest to establish, with each subsequent one getting easier.
As you gain experience and learn from mistakes, you will eventually have a system figured out of what works FOR YOU. You will realize that you start working smarter, often knowing exactly what a contemplated endeavor would turn into and what kind of pay offs to expect.
If you have been there and done that I am sure you are nodding your head just about now. With experience you will also know when it’s time to pull the plug and when to step it up for a particular venture.
What’s interesting is that as you roll from one stream to another, you will have opportunities to establish passive income streams in the process. I am constantly surprised today by random ACH deposits I receive in my business bank account from names I don’t recognize. Upon further research these end up being streams I set up ages ago which are still trickling in.
Shotgun Approach or Focus?
Whether you should keep firing a shotgun your way to multiple income streams or focus on one at a time is a common question I always get. This is difficult for me to address because I truly believe both approaches can be effective. I know because I have done both.
More than anything else, characteristics like your personality type and attention span make the biggest difference in what approach you should take. From personal experience, I can tell you that focusing on an endeavor yields quicker and stronger results.
That said the shotgun approach can also work out well, as long as you understand that it takes longer and you need to have the capacity to manage multiple projects in parallel. Do not underestimate this skill as not everyone can do it.
This is a big reason why I am not an advocate of quitting your job immediately while trying out a side gig . And though many Deperados have made it big in entrepreneurship, I believe that entrepreneurship is not for the desperate kind .
How does All this Apply to Me?
In the interest of not coming off as a theorist, this post will not be complete without my personal experiences in my entrepreneur’s journey.
I started building diverse income streams a year out of college, after securing a good job that paid a decent amount. Today I have my feet in the stock market, private company investments, small business, real estate, precious metals and several online businesses.
My approach was to establish income streams in areas of my interest in passion. Passion is what enabled me to become a student of the subject matter, and my entrepreneurship drive is what enabled me to seize the income opportunity within each subject matter.
Many people subscribe to a proven business model such as a franchise, or go after the low hanging fruit. Many successful professionals look into investments such as dividend portfolios, building their 401k plans, etc. That is also a good approach to get started.
The good news is that there is no one size fits all formula, and you can pursue income opportunities in areas you are most interested in. The best part of it all is that you can start building income streams while maintaining full time employment.
There are countless ways to make money out there and ANYONE can make it. With the amount of options available it is easy to get overwhelmed and as a result paralyzed from taking any action.
Stick to your passion and learn how to say no to income opportunities that do not appeal to you. Not everyone gets this immediately. I certainly did not, and ended up wasting A LOT of time in the scatter brained process.
I also understand that establishing multiple streams of income is not for everyone. Many feel comfortable in the position they are in, and if so then all the power to them. We all have different kinds of goals and therefore our decisions will vary significantly.
Whatever you decide to do, or not to, your contentment and satisfaction in the end is what truly matters.