Diversifying with Multiple Streams of Income

multiple stream of income

Track all of your multiple streams of income using Personal Capital. It’s the best way to track your net worth, income, spending and investment performance.

Around my eighth birthday, my Mom took me to a bank to set up a passbook savings account for me. I used it to deposit birthday money I received from my Aunts.

If you’ve never seen one, it’s sort of a ledger of your bank account printed in a book the size of a passport. You deposit money, withdraw, or receive interest and the teller has a line printed in the book. I thought this was really cool as a kid.

The day I opened that account I started receiving my first passive income, interest on cash in the bank.

Building Multiple Streams of Income

Recently I’ve received some comments about my multiple streams of income. I think diversifying into multiple steams of income is a good strategy for me for the long-term. As a trend, diversifying income will grow as people change the way they define retirement. Here’s a more detailed look at my various income streams over the years.

Day Jobs

My various day jobs over the years have always earned me the largest percentage of my overall income, dating back to my newspaper route at age 13. The job didn’t pay that well, but I learned that collecting money from people that don’t have any can be difficult.

Later I mowed lawns, worked in retail, life-guarded, and worked in a photo lab to pay for things as a teenager. Today I’m an IT consultant. Translated into something my parents understand, I say I work with very large computers. A day job can be a great way to earn a lot of money, but there are two major costs associated with it. Time and taxes. Taxes are inevitable, but it’s our time that is most valuable.  Day jobs are certainly not considered passive income.

Dividends

Interest on cash was my only passive income source until 1995. That year, my uncle gifted me one share of Chevron (read about it here). I still own that share, and and many more now. They’ve paid me dividends ever since. The share I was given for my birthday is what really introduced me to investing for the long run. Dividend income is one of the most accessible forms of passive income out there, especially since brokerages are online now and sometimes don’t even charge fees.

Capital Gains

At one point I was a short on cash after college and liquidated a small number of my Chevron shares. The price was up more than 50% since I had started buying. The sale was the beginning of yet another source of income, capital gains.

Over the years I’ve sold some stock here and there, sometimes for gains, sometimes because I made a bad investment decision and sold for tax loss purposes. But since the financial crisis of 2007-2009, I’ve decided to go back to my roots of investing for income to build a nest egg that will allow me to retire by age 55, one year before my Dad retired.

Selling stock to realize capital gains is always a way to generate more income if cash is needed, though less sustainable than dividends. I generally choose to hold stocks for the long-term instead, collecting the dividend. Option trading is another vehicle to produce capital gains.

Birthday money dried up many years ago. As I became wealthier and more educated about money, interest on cash, day job income, dividends and capital gains were not enough income streams for me. I wanted to diversify my income streams even more to help reach my retirement goal.

Real Estate

Back in 1996 I met a 27-year-old who owned a beach rental property. I still remember it was a four-unit complex. He paid $160,000 for it. He put every penny he had into buying that place, and likely some debt into maintenance costs. I used to build cash flow models based on his numbers to try to guess how much money he was making. It was tricky math because he could charge high rent, but only for 3-4 months out of the year being in a beach town renting to beach workers instead of beach-goers. He was probably close to break-even that first year, but every year since I’m sure he made more and more. If he still owns it today, that four-unit beach apartment complex has surely appreciated handsomely.

Meeting this guy while I was in college studying finance was another eye-opener for me as I realized it was possible to become a landlord at a relatively young age. As with most investments, the earlier you start the better.

But I didn’t become a landlord in my 20’s because my priorities led me to travel the world for 14 months, spending nearly every dollar I had in the bank on globetrotting. To this day, it was some of the best money I have ever spent. It was a stellar investment in life experience, but afterwards I was nearly broke.

Four years after I returned from traveling, I bought my first property, a one bedroom that I lived in for nearly five years. When I moved out with my wife into the home we live in now, the condo became a rental, fulfilling my aspirations of becoming a landlord. However, it wasn’t a source of income at first. It produced a loss due to that little financial crisis I mentioned earlier.

But things have their way of working themselves out. That crisis led to the very low interest rates we see today, and I was able to refinance that condo to make a small profit. Now I’m even considering selling my condo.

Real estate income as another source makes five. But five was not enough for me.

P2P Lending

In early May of 2013, Google announced they invested in a company called Lending Club. I had heard of peer lending, but didn’t pay much attention. Google’s stake was another learning moment for me as I discovered yet another source of investment income, this time even more passive than others. I update this blog every once in a while with my Lending Club reviews. Click that link to see my investment performance results.

Six sources of income is pretty good, but I’d like to find some more. Tracking all of this can be time consuming, but I enjoy it. There’s also plenty of places I can automate and save time.

More Potential Streams of Income

I’m always thinking about building more income streams. A new source could include moonlighting at a second job, but I’m at the point in my career where I’d rather spend time at home with my kids. The point is to ultimately work less hours for someone else, not more. So what are some other possible streams of income?

I recently came across an article that gives suggestions for many more streams of income. In fact, 29 ideas for side hustles and extra income. #26 was particularly funny – “Cuddle for Cash”. Not my cup of tea, but I like the creativity. Check it out over at The Penny Hoarder.

For our family, selling crap in our house is one idea. I’ve sold a few baby items this year, so I guess that could be considered an income source. But the inventory is limited. Reselling goods on Amazon or eBay would be more sustainable. Buying a product in bulk that is in demand, then selling at a profit is an age-old business. Storing and shipping the product can be complicated variables that need to be accounted for. Time is a big factor too, unless you are able to hire everything out. If it was simple, everyone would be doing it. While viable, I don’t think this is for me because of the time commitment.

What about buying a business or franchise? I’ve definitely looked into a few. Instead of buying more real estate or stocks, why not invest in a low-cost-to-entry franchise? There’s hair cutting, ice cream, sandwiches, batteries, and any number of franchises out there. To be successful in franchising you need to be all in. To be all in, you need to be passionate about the product or service. I haven’t seen anything out there that I’m that passionate enough about that I’m willing to risk a large amount of capital on a new business. This might work for some seeking financial independence, but plenty fail and lose their shirt. It takes experience and lots of capital to be a successful franchisee.

I spend a lot of time on this blog. If I can make some money online, that would be cool. But I write for many reasons, not necessary for income. Blogging is an outlet for me as my day job isn’t professionally all that exciting. At times I have thought about a career in financial services, but chose a different path. Perhaps blogging could lead to some freelance work that I can do from home. Moonlighting from home would be much better than delivering pizzas or working in a UPS warehouse. One great benefit to blogging is you learn about how internet businesses work, so it can be a platform for other money making ventures.

Do One Thing or Diversify Income Streams?

Do one thing and do it better than anyone else – Orville C. Redenbacher

I’ve always liked that quote by the popcorn maker. One or two passive income streams may work for some people out there because they can really focus on the task at hand, at the thing they know best. For me in life and investing, I’ve always taken a be good at a lot of things approach, instead of focusing on one sport, talent, or investment strategy in this case.

The point of this exercise is to look at my income streams to see where I am and where I can be in the future. Multiple streams of income, whether passive or not, take up more time. At this stage in my life, I’m focused on building income and net worth so that when I’m older and ready to retire, I can wake up and do nothing if I wish. Today, I want to work hard to build as much income as I can. I plan to keep working until my kids are in college, right around my retirement goal age. College expenses are the greatest risk to my retirement goal. If I can quit my day job before then, that would be fine, but I’d still be active with other income. When the time comes, I want to travel in retirement and not work at all.

Diversifying with multiple streams of income helps to mitigate risks. Real estate and stocks tumble?  Still have the day job. Lose the day job? Real estate income, dividends and P2P lending income continue on. Losing a day job could even lead to turning a side income project to a full-time day job.

Having only a day job for income makes an individual more reliant upon that income. Lose a day job and the only source of income is gone and the need for debt grows if savings isn’t sufficient. Consumer debt and long periods without any income can lead to big problems as we all know, and it most definitely slows down progress on long-term goals.

Track all of your multiple streams of income using Personal Capital. The best way to track your net worth, spending and investment performance.

What is your take on diversifying with multiple streams of income? Is it important to you or not so much?
Image courtesy of tiramisustudio / FreeDigitalPhotos.net

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17 Responses to Diversifying with Multiple Streams of Income

  1. Income Surfer July 23, 2014 at 8:16 am #

    Thanks for the article RBD. Having multiple income streams are incredibly important to me. I feel good about my writing and dividend income, but I need to develop others. I think my next step will be either book or real estate revenue.

    -Bryan

    • Retire Before Dad July 23, 2014 at 11:35 am #

      Bryan,
      I did receive a bit of income from SA. But writing in that forum is very time consuming. Don’t know if that is sustainable for me. More real estate is next for me.
      -RBD

  2. SavvyFinancialLatina July 23, 2014 at 10:10 am #

    Developing multiple income streams is a goal for us. We have decided to start saving up for our next acquisition, a rental property. I’ve estimated it will take us about 2 years to save up a down payment for our first rental property. I should probably get my real estate license since we are planning to purchase a property! And I need to read up on rental property financials.
    I don’t want to rely on my day job for the rest of my life. Corporations are too tricky to keep relying on them till death. Plus, I honestly, don’t want to spend the rest of my good years working for the man. 2 years in and I’ve already decided that!

    • Retire Before Dad July 23, 2014 at 11:33 am #

      Rentals take a lot of cash, both for the purchase and up keeping. Good thinking planning ahead. RE license would save you on costs, and could lead to more.
      -RBD

  3. Dividend Mantra July 23, 2014 at 12:20 pm #

    RBD,

    That’s a nice rundown of some different income options.

    I think if you can optimally perform in all of these different avenues then that’s the way to go. But our time and attention is finite, so I do wonder if one isn’t doing themselves a disservice by stretching thin. That being said, if all of these sources require little time on your part then I say go for it. The more income sources you can possibly have limits risk of income loss.

    I’m going to stick with 50 or so stocks and an active source in writing. I may add bond income at some point, depending on rates. But that’s probably it for me. I stick to what I know I can do well, and where I think my time is best spent.

    Best wishes!

    • Retire Before Dad July 23, 2014 at 1:29 pm #

      DM,
      I’m keeping a close eye on the amount of time I put into my investments. P2P is very little. Stocks a lot more, but more tried and true. Real estate efforts come and go with a few headaches every year. But well worth the return. For now this is all working for me, so I’ll be continuing on and looking for more. I suspect as time goes on I’ll find ways to automate more. My drips are a good example. But I still have to follow the stocks.

      I thought about writing about bonds here too, but I don’t suspect I’ll be buying any in the next few years.
      -RBD

  4. Nicola July 23, 2014 at 3:30 pm #

    Great article! Having multiple income streams is definitely an aim for me; it will take the pressure off in the end.

  5. Asset Grinder July 24, 2014 at 2:17 am #

    For sure you have to diversify your income streams. You never know when one market will go cold so you have to easily shift into the next and its much easier when you already have your foot in the door with it. Every market crashes so you have to be ready when they do. Thats why I have my foot in the door in stocks, real estate and investing in a business. If one tanks I can take the hit. Also i do not have a day job so it gives me more time to hunt for new opportunities but this flexibility puts me at greater risk of tanking markets.

  6. JC @ Passive-Income-Pursuit.com July 25, 2014 at 1:07 pm #

    Right now we’ve only got job and dividends as our income sources. Although dividends are slowly covering more and more. Eventually I want to get a rental property. I was very serious about one but by the time I got home and could see it it was off the market. I also bring in a bit of income from blogging/SA which is a nice supplement.

  7. Tawcan July 25, 2014 at 1:54 pm #

    Having multiple income streams is something I’m working on. For now my day job and dividends are two biggest contributors. I was looking into P2P lending a while ago but looks like we Canadians are not eligible for these internet P2P lending sites. Rental income sounds interesting but it’s a little bit tough when real estate is so high in western Canada.

  8. SavvyJames July 26, 2014 at 1:04 pm #

    Multiple, diverse, income streams is key not only during the working years, but in retirement also. As it stands now, mi esposa and I are looking at 11 streams in retirement. The more the merrier and the less reliant on any one or two, particularly when you consider that one or two (e.g. changes to Social Security benefits) are likely to be negatively impacted by forces beyond your control.

  9. Vin August 1, 2014 at 6:14 pm #

    I agree with your MSI approach. It’s fantastic and quite in line with my thinking. I work a 9-5 job and then have dividend growth stocks which will replace my salary prior to me retiring. My goal is to only spend half the dividends + interest I earn each year during my retirement years, thereby allowing myself to spent a growing (larger) amount each year if I wish to do so.

    I don’t like rentals as tenant mgmt. has been a time consuming activity for me in the past. I prefer reits, keep 33% in laddered CD’s 1-5 years and the rest in equities. I try and hold approximately 40 equities with no more than 5% in each holding.

    I sell naked puts on stocks I would not mind owning, naked put spreads and covered calls for additional income.

    The Lending Club seems interesting but I will have to investigate further….

    I like the MSI approach, but without any hastles, as family time is important to me.

    • Retire Before Dad August 2, 2014 at 12:40 pm #

      Vin,
      Lots of details on your plan. Thanks for sharing. I’m considering some options for additional income too. In the past I’ve only bought calls long and sold covered calls. I’ve been tempted recently, but spending a log of time on a new rental property. I’ve had success as a landlord and don’t mind spending the time on problems because the amount of work is usually small for the amount of income it generates. Its not for everyone. I still get to spend a lot of time with my kids who are still very young. I’m home from my day job at 3 or 4 each day.
      Thanks for stopping by!
      -RBD

  10. A Frugal Family's Journey August 13, 2014 at 1:35 am #

    RBD – nice list of income streams…you definitely don’t have all of your eggs in one basket. As for P2P, noticed you only mentioned Lending Club. Our family also invest in Prosper, which is the second leading P2P site. We found that between the two, we can better maximize our exposure. Anyhow, keep up the great work!

    Wishing you continued success in your personal journey. AFFJ

  11. Integrator@financiallyintegrated.com August 30, 2014 at 1:28 pm #

    I’m really warming to real estate as a potential source of passive income. We’ve taken the dividend way thus far, but real estate has been a welcome addition. I think options income could be an interesting additional source too, which I hope to do more experimenting with in the next few months

    • Retire Before Dad August 31, 2014 at 12:21 pm #

      Integrator,
      I’ve done a bit of option trading in the past. Mostly speculative though. I had a few big hits, but that’s not my strategy anymore. Selling puts does seem like a good way to go. As for real estate, I’m going to keep looking, but I have other places to put the cash, and my wife has some ideas as well, so I’ll be trucking along building wealth. Another condo rental is probably out of the picture for now. Thanks for stopping by!
      -RBD

  12. Financial Forager September 4, 2014 at 4:30 pm #

    I agree that multiple income streams are important. It is always good to have different options to bring in money. I am currently exploring passive income through building a dividend portfolio. I am considering real estate, renting my house when it is paid off. I have not tried P2P lending. 13% return is noting to bad at all!!

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