They say millionaires have an average of seven streams of income, and now I know why. Recently, I celebrated my work anniversary and my job’s gift was no paycheck. See, when you’re a government employee, and the government is shut down, you don’t get paid.
Fortunately, I have an emergency fund. However, many of my colleagues who relied on one stream of income found themselves unable to pay their bills after the first missed paycheck.
Everyone should be building multiple streams of income so when one income decreases or completely dries up you still have other ways to make money. I am going to breakdown passive vs. active income and give you some real ways to make more money.
Never Put All Your Eggs In One Basket
There’s a reason why they say “don’t put all your eggs in one basket.” However, when you rely on one stream of income, your job is your one basket. You work and you get paid – that’s the agreement.
In my case, the government eventually went back to business as usual, and I received back pay. However, not everyone gets a happy ending.
For example, some government contractors never received back pay and others lost their jobs when their companies closed up shop. The truth is, companies lay off employees or close all the time.
To protect yourself and your family, you should diversify how you make money and where you earn income. Building multiple streams of income helps provide you and your family more security and financial stability.
Active vs. Passive Income
There are plenty of ways to make money. However, the kind you want is passive income. Some people call passive income money you make in your sleep.
What people don’t tell you is that most passive income streams require you to do some work first. But before I get into that, let me explain what passive and active income are in more detail.
Active income is the money you make from work or services you do. It includes wages, tips, salaries, commissions and business income. On the other hand, passive income is the money you make from assets.
For example, passive income is interest earned from high yield savings accounts, dividends, rental income or income from a partnership where you are not actively involved.
How to Make More Money
When it comes to making more money, most people start by creating more active income. For example, they get a second job, start a business based on a specialized skill or sell a product.
Then, when they have accumulated enough cash, they use that money to purchase investments like stocks and rental homes to make future passive income. Alternatively, you could save enough money to buy the assets, too, but increasing your income helps you get there faster.
In short, active income is the money you make in exchange for your time. However, to get to seven income streams you must have passive income streams, too. It’s the combination of the two that gets you real wealth.
Invest in the Stock Market
When you buy a stock, you become a partial owner of the company and earn the title of shareholder. Some companies, not all, give their shareholders a portion of the profits in regular payments called dividends.
The average return on a stock is 10%. When you buy a share of a specific company, you are only investing in that one company. However, if you want to diversify your interest in the stock market, you can also invest in mutual funds or exchange-traded funds (ETF).
Mutual funds are a collection of different investments, usually different stocks. Since one mutual fund can include several different stocks from many industries, you lower your risk. When you own one company’s stock you could lose everything if that company closes. Companies have to pay creditors before they pay shareholders.
However, when you invest in a mutual fund, one industry in your fund could experience losses, but you might still see gains. The other stocks in your mutual fund might have more significant gains that make up for the stock that decreased in value.
ETFs are very similar to mutual funds. They are a combination of various types of assets like stocks, bonds and securities. The significant difference is ETFs can be purchased and sold freely on the stock market, but mutual funds usually must be purchased directly from the fund manager.
Individual stocks, mutual funds and ETFs all have the potential to earn you money. However, as with any investment, you have the potential to lose money, so make sure you do your research. It’s important you know and understand the companies or funds you are investing in. Know your fees and work with a professional or robo-advisor, like M1 Finance, who can manage your portfolio for you if you need the help.
Buy Real Estate
Many investors have made money investing in real estate. Some real estate investors start investing in real estate by purchasing a home for themselves. Then, when they decide to get a bigger home or move elsewhere, rather than selling their house, they rent it out for monthly income. That’s how I got started.
Rental properties come with several benefits. For one, the rent allows you to pay off your mortgage. Your goal is for your mortgage, insurance and repairs to be less than the rent paid each month. The difference between your expenses and your rent is your cash flow.
Income from being a landlord can be helpful, but being a landlord is not for everyone. If you are not willing to handle maintenance calls in the middle of the night or live far from the property, you may have to hire a property manager. However, this is another expense that comes out of your rental income.
If you don’t want to be a landlord or flip houses, consider pooling your money with other investors in a Real Estate Investment Trust (REIT). In a REIT, individual investors buy shares of a real estate portfolio. The money you invest is then used to purchase commercial or residential properties. Then you are paid interest on your money.
I started investing in REITs a couple of years ago to diversify how I invest in real estate. On average, I earn an 8% return and get paid interest monthly. As with other investments, it’s essential to do your research.
In general, REITs provide you liquidity, trade similar to stocks and have several types to choose from. Public REITs are regulated by the U.S. Securities and Exchange Commission and bought and sold like stock; However, private REITs are normally limited to investors that meet certain criteria or are accredited investors. Furthermore, private REITs also have their own rules about how soon you can access your initial investment; some don’t allow a withdrawal for 12-24 months.
Start a Business, Create Something
If you have been in your career for a while, you may be a subject matter expert. Companies pay good money for subject matter experts to help them solve problems. When you pitch your skills to the right company, you can get paid to consult or help them on a specific project.
Consulting is one way to make active income. However, if you know what you’re doing, you could combine your knowledge in a book, on a website or in an online course.
When your business creates a product that people want and need, you have the potential to make money off that product indefinitely.
Starting a business can be risky because most small businesses don’t survive more than five years. However, when you find the right business for you, your income potential is unlimited. Most successful millionaires make their money through entrepreneurship.
However, entrepreneurship takes work, and you have to be active initially. Writing a book takes time, a course also takes effort to create, and websites have to get a steady flow of visitors before you make any money from advertising.
When you are ready, go forth and create more income. In most cases, it will take money to make money. Therefore, your job is your first investment. The income from your job is what you can save first to invest in the stock market, real estate or your own business.
What are some other ideas you have to start building multiple streams of income whether it’s passive or active? Leave a comment below and don’t forget to Join the Wealth Noir Community.
Acquania Escarne is the creator of The Purpose of Money, a community of women building generational wealth for their families one dollar at a time. As an entrepreneur, real estate investor, and licensed insurance agent, Acquania has always been passionate about financial literacy. On her website, Acquania blogs about ways to help you improve your money habits, create wealth, and invest in real estate. Follow Acquania on social media for daily tips.