The Wealthy Have Multiple Streams Of Income – How Many Do You Need?

We recently signed up for a course on making printables. My main business is career coaching, so I do a lot of writing, keynotes and training – activities which lend themselves to printable quotes and exercises. We had been thinking about adding a product in our business to give it another stream of income. While most of my work was already virtual, I still did a significant amount of live events, which have been postponed or cancelled outright and need to be replaced.

Having multiple streams of income is an established trait of the wealthy – Jay-Z and other celebrity fortunes are built on multiple income streams. As reported in Inc, 65% of self-made millionaires had at least three streams of income. Dividend Real Estate reports that most millionaires have seven income streams. How many streams of income do you have?

We have six streams of income

If we look at cash flow, we have four streams of income:

1. Earned income from our consulting work
2. Product income from books and courses
3. Rental income from real estate
4. Interest income from private loans (and technically the banks that host our accounts, but with rates so low, that income feels like zero!)

We have two additional streams that we are reinvesting so they add to our net worth but not our day-to-day income:

• Dividends in our paper asset portfolio
• Capital appreciation from our real estate, which we have tapped via HELOC or cash-out refinancing to reinvest in additional property

Each of these categories has multiple sources. For example, our consulting work comes from multiple clients and services offered. The printables course would add another product to our offerings. We have several properties for rent – some vacation and some long-term.

By having multiple streams and multiple sources for each stream, we are not reliant on just one way of getting income. Our long-term goal is to have our day-to-day income split equally among streams 1-3. We consider stream 4, interest income, as more of an offshoot of our real estate activity since we typically lend to colleagues from that network.

If you’re thinking about picking up additional income streams for yourself, FlexJobs recently came out with a list of 25 side jobs where you can freelance. I love these listicles (i.e., articles that are lists) because you can get ideas and inspiration. However, keep in mind that before a stream actually produces income, it needs to be established. A number of the proposed side jobs require special skills or expertise and runway to get going.

There are three key advantages from having multiple streams of income

That said, the enormous benefit of multiple streams of income greatly outweighs the runway of time and effort you need.

First of all, having multiple streams of income means we can be flexible in responding to a market opportunity. If housing prices dip in Florida like they did a few years ago, we could focus more attention and effort on real estate. If we picked individual stocks (which we don’t), we could make the same argument about buying during this time of extreme market volatility. There is often money to be made during times of market chaos.

Secondly, and my personal favorite, multiple streams of income allow us to flex different skills and interests. Maybe it’s because I’m a Gemini, but I can’t imagine just doing real estate or making products or consulting. Even though I thoroughly enjoy each pursuit, it’s having a portfolio of activity that keeps the work fulfilling.

Finally, having multiple streams of income provides diversification for when things go wrong for one stream or another. Of course, the economic fallout of this pandemic is stress-testing all of our income streams at the same time. However, I sleep better knowing that we have several levers to pull as we manage our net worth.

However, juggling multiple streams of income is not without its downside

It’s more work to grow and maintain multiple sources than just one.

Ideally, some of your sources are related so you can build on existing knowledge, skills, time expended and money. For us, lending is related to real estate so the research and networking we do for our rentals helps us identify potential loans. There’s still extra work distinct to each stream, but enough synergy that it’s not like starting from scratch. Similarly, our product income builds on the same expertise we use in our consulting work.

It can be hard to focus and know what needs your attention when. We aren’t active paper investors and still aren’t today, but we still should have rebalanced more than we did in the last couple of years. That came to a head this past March when our paper portfolio dropped by a third. It revealed that we should have managed that stream more closely than we had. I still struggle with balancing everything that is going on, especially because market conditions mean we need to manage all our streams more closely.

Of course, knowing that we have to pay closer attention still requires the time and effort to pay attention and act on what we learn. With multiple streams of income, there is a shortage of time and therefore a dilution of effort. Our focus right now is on our consulting work and products. However, with both real estate and our paper portfolio requiring more management, I do think about streamlining one or the other.

If we want to manage our business, real estate and paper well, we need to have the skill and expertise to contribute to each area. Famed investor Peter Lynch in his book, One Up On Wall Street, coined the term, diworsification. Lynch was referring to straying too far away from what you know — that’s when diversifying actually makes things worse. That’s true of investing in too many different markets, but that’s also true of having too many disparate streams of income.

Using the Hell Yes/ Hell No metric to decide

I feel like the market is too chaotic to make any big moves – e.g., pull out of paper and go all-in real estate. I also don’t feel strongly enough about any big move, so we’re staying diversified across all our income streams for now. At the same time, we do need to focus our time and active effort, and this will be done with the non-scientific Hell Yes/ Hell No metric.

If an activity feels like a Hell Yes, we’ll do it. For something like printables, it’s low risk in terms of money, though it is time-consuming especially at first. However, we enjoy it, which is my biggest priority, and that makes it a Hell Yes. I don’t feel a Hell Yes about selling anything, buying anything or launching anything else, so it’s status quo for everything else.

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What’s a Hell Yes move for you right now? Are you expanding, contracting or holding with your income streams?