One of the best financial decisions I ever made was getting a second source of income.
I was doing ok at my job but wanted to see if I could boost my income because I was starting a family. I knew things were going to get tight. I started looking into rental properties.
After a bit of digging, I bought a run-down row house for $40,000 in a dangerous area that was over an hour away from me. If you saw HBO's “The Wire,” you know the type of neighborhood I am talking about.
I made every mistake you could imagine.
But I eventually found success when I started investing locally in nice houses that I knew would be attractive to high-quality tenants. After that adjustment, the path to success was clear.
Since then, I have grown my portfolio to nine investment properties that all cash flow and give me a substantial amount of extra money each month.
I did all of this while holding down a demanding full-time job in the banking and financial services industry.
I tell you this to assure you that expanding your income sources can be done. Even if you are busy. Even if you don't know what you are doing at first.
There might be setbacks (I sure experienced them), but if you are determined, you can get past them. Start small – let your successes build into bigger successes.
You will be astonished at what you can accomplish over even a few years.
With that, let’s dive into the reasons why you should explore multiple income streams.
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You Might Lose Your Job
I hate to begin on a negative note, but this has to rank number 1. Perhaps the most devastating thing financially that can happen to you as a single income earner is losing your job. Once your job is gone, you are stuck and have nothing coming in.
And if you are like many people, you don't have enough to tide you over until you find your next job. In fact, the Federal Reserve reports that 4 in 10 people do not even have $400 to cover unexpected expenses. I hope you fall into the 6 out of 10 who have more than $400 to cover emergencies.
But if you are not, or you just want to start saving a little more to create breathing space, you can begin by opening up a high yield checking or savings account. They often pay a lot more than the standard checking or savings accounts at your large money center banks, like Bank of America or Chase.
Aspiration is an option that you may want to explore. If you happen to be socially or environmentally conscious, they seem committed to that as well. Aspiration offers digital banking services, no fees, unlimited free ATM withdrawals, and unlimited cash back on debit card spending. They also give 10% of their earnings to charity.
Now, on top of the difficulty of covering your expenses if you do lose your job, it's highly likely that your employment is “at-will.” This means that you can be fired at any time and for any reason (other than for legally protected reasons, like unlawful discrimination, etc.).
And, as you have probably seen, businesses don’t hesitate to lay people off when market conditions change or they just need to cut expenses.
Given this, you mustn’t have all of your eggs in one basket. You don’t want to be in a desperate situation if you lose your job. If you have another source of income, you can breathe a bit easier because you have a stronger financial foundation.
You Can Eliminate Debt Faster
If you get a second income, you can start to aggressively tackle some of your high-interest debt. According to CNBC, more than 80% of credit card holders worry that they won’t be able to make even the minimum payments on their credit card debt.
Credit card debt is a serious problem for many people. If you are among the many people who carry a balance on your credit cards and make those monthly payments, this burden on your cash flow can jeopardize your chance of growing financially. You may also have student loans.
All of these debt obligations force you to take money out of your paycheck each month and leave you with less to spend on investments (or even necessary expenses).
Related Reading: If you are in a situation where your debts have mounted up and you are starting to feel overwhelmed, check out my article discussing the five pillars of personal finance. I talk in detail about debt and effective strategies for eliminating it.
Another option you may want to explore is permanently lowering some of your bills. LowerMyBills.com is a premier, free, online service for consumers to compare low rates on monthly bills and reduce the cost of living.
But even after lowering some of your bills, it is of immense benefit to get another source of income because you can apply all of that extra money to pay down your debt permanently. There are a lot of strategies around the best way to do this, but the bottom line is that the debt will disappear much faster if you pay it down through a second income source.
One of the best things about having a second income is that you can tackle debt without sacrificing your current lifestyle. You can still spend at the same levels, but you are no longer treading water. You are making real progress to becoming debt-free.
You Have Unlimited Upside
If you have a job, the only way to make more money from that job is if your employer is willing to pay you more. You may find that working harder leads to raises and promotions, and that's great. But that might not be the case forever.
When it comes down to it, a huge part of your financial growth is in someone else’s hands.
I don’t like that.
Don’t get me wrong. I have been really lucky with my employers and they have always treated me fairly, but I have no illusions that this holds for everyone. If you are not finding traction in your job, there is hope.
You can take back control of your financial future by finding (and growing) an extra source of income.
You Can Weather Hardships Better
Having a second source of income lets you better handle the unexpected. Whether that is a lay-off, a big medical expense, or an unexpected repair on your car, an additional income stream will soften the blow.
You know that these things are going to happen during the course of your life. Things break, people get sick, and the world can sometimes be harsh. I am not a pessimist by any means, but those are the facts of life.
If you have multiple streams of income coming in, you are far better prepared to handle these unpleasant surprises and won’t be in a panic when they happen.
You Gain a Valuable Skillset
This might be my favorite on the list.
When you pursue a new income stream, you must learn what is needed to succeed in that area. Whether it is real estate, an online business, or even a side job, you need to get more knowledge than you have today.
But that should not scare you. Quite the opposite. Warren Buffet said in 2017:
Ultimately, there's one investment that supersedes all others: Invest in
yourself…Nobody can take away what you've got in yourself, and everybody has potential they haven't used yet
To me, this means that the knowledge you gain as you start your second income stream is going to pay dividends for the rest of your life. So take this opportunity to learn as much as you can about the new income stream you may be considering.
Become an expert. You will not be wasting time or effort.
As you continue to gain knowledge and skill in your chosen area, you will realize the powerful truth of this quote. You will gain confidence because you are finding success. And as your confidence grows, you will become motivated to become an expert in something else, which in turn, will expand your earnings further.
It's a virtuous cycle that allows you to achieve massive financial success.
You Can Diversify Your Risk
As you expand into multiple streams of income, the risk of a single setback derailing you decreases dramatically.
If a decline in the stock market is hurting your dividend portfolio, you are fine because your rental properties are still giving you rent checks each month.
Your online business selling baby clothes may not care that the S&P 500 dropped today.
These are just examples, of course, but you get the point.
You Can Retire Early
Early retirement is the ultimate financial goal for many people. It’s not surprising why. Imagine you can quit your job and live off the money provided by earnings from your other income sources.
You can travel, explore new hobbies, and participate in charitable activities that improve the world around you.
Multiple income streams provide a solid path to achieving this goal. In fact, an often-cited IRS study shows that most millionaires have multiple income streams. They must know something.
Once you establish one additional income stream and it grows, you can save and invest more money. This leads to increased wealth. As you get additional income streams, the growth of your income and wealth accelerates
This type of rapid income growth makes a huge difference over time and can allow you to retire much earlier than if you had just stayed at your job and done nothing.
Multiple income streams can be a powerful way to give you financial freedom while at the same time protecting you against unexpected hardships and risks. It can be done and many have done it before you.
Don’t let inaction take away your chance to reach your financial potential.
One of my favorite articles on the topic gives you 15 concrete, practical, and generally awesome passive income strategies that don't require any money to get started.
Let me leave you with this:
Just start looking at additional income streams that interest you. See if they make sense for you. Then get started! The opportunity for a radically different financial future is waiting for you.