I posted about Emergency Funds a few weeks ago and talked about how it protects you against financial emergencies by providing a safety net. Another way to protect yourself financially is by having multiple income streams.
What are Income Streams?
Income streams are sources of income, either from earned or unearned sources. Your typical earned income is going to be from your job. Whether you are on salary or get paid by the hour, you earn this money in exchange for your labor. Unearned income is income from sources like Social Security and pensions, investment portfolios, gambling, gifts, etc.
(we’ll save the debate over whether Social Security and pensions are “earned” for another time)
You might have also heard about active and passive income. You can be forgiven for thinking passive income would be considered unearned income, but it really depends on the source. For instance, if you wrote a book and are collecting royalties, you might call that passive/unearned income. But it is actually residual income, and it is income received for work you accomplished, so it is earned income.
How do you get multiple income streams?
If you have a paying job, that’s usually your main income stream. If you are part of a couple that shares expenses and you both work for pay, you already have multiple major income streams. Lucky you! If you have a savings account that pays interest, that is an income stream. Landlords receive income from rental properties, artists can receive royalties, investors can sell investments or receive dividend income…the list goes on and on. Some people will take on a second (third, fourth…) job to increase their income streams. Heck, even having garage sales or selling on Ebay is an income stream if you do it regularly.
Why should you get multiple income streams?
As I indicated earlier, having income streams beyond your normal job provides a cushion in case you lose your primary income. In an ideal world, your additional income streams would provide enough income to fully cover your expenses while you look for a new job. But even if that isn’t the case, having multiple income streams can make a tough situation a bit easier. I know I would get through a job loss a lot better if I had money coming in that stretched my Emergency Fund dollars a little further.
Another consideration is that multiple income streams increases your overall income. Think of the things you could do with the extra money! If you think you can’t afford to max out an IRA, well, what if you earned an extra $5,500 this year? Or maybe you can take on a pizza delivery job to pay off your debt faster. I’m sure you can think of a few reasons why bringing in more income would be helpful.
Military Dollar’s Income Streams
Right now, I have the following income streams:
1. My military pay and allowances
Obviously this is the big one. Currently, over 90% of my income each year comes from my military paycheck. That’s a bit higher than previously because I’m living in a high Cost of Living area, so my housing allowance makes up a larger-than-normal chunk of my paycheck.
(And yes, for you military members out there, I count my BAH and BAS as part of my income. You should too, even if it isn’t taxable income)
2. Interest from my savings account
This isn’t a huge amount, since savings accounts aren’t paying much right now. However, it’s more than it should be because I have more in savings than I really need. Meaning, I really should be investing some of that money instead of letting it languish in a low-interest account. Bad finance blogger! Do as I say, not as I do… Anyway, this gives me a couple hundred dollars each year in income.
I have quite a bit of my money in dividend paying stocks. If you saw my post on dividends last week, you know you can receive a steady income from them. I have a lot of my dividend stocks in retirement accounts, so I can’t derive an income from them. But I also have some in my taxable account, and it’s throwing off a nice chunk of change each year. Right now I’m reinvesting that money via dividend reinvestment plans (DRIPs), but if I needed the money I could receive it as income.
4. Rental income
I got pretty lucky with my rental property. When I purchased the house in 2011, it was near the bottom of the market. I think only one house of the same floor plan sold for less in my neighborhood, ever. Within 12 months of my purchase, thanks to a huge resurgence in the market, the house was valued at considerably more than I had purchased it for. SWEEEEET!!!
The rental market has remained strong since my purchase. I’ve been able to charge rent that considerably exceeds my obligations each month. My obligations are the mortgage, taxes, insurance, property management, and an Emergency Fund. That’s right, my rental property has its own, separate Emergency Fund. I’ve already built up a hefty Emergency Fund that would cover eight months of vacancy plus a major expense (think, roof replacement or replacing all appliances at once). So for now, I’m taking the entire profit each month and counting it as income. If I ever use the Emergency Fund, I will stop taking the money as income while I rebuild the fund.
5. Blog income
Haha, just kidding! This one is kind of a joke, because so far I have earned less than a dollar. Add in the expenses I’ve paid to set this blog up, and I am definitely not profitable and won’t be for awhile. Thank goodness I like blogging and consider it a hobby! But, yes, bloggers can make money from their blogs and I might eventually earn some income from this project. But for now…not so much. I’m doing it for you wonderful readers, you.
As you can see, there are a variety of ways to build different income streams. And I haven’t even gotten to the point where I inundate you with 1,001 side hustle ideas!
Do you have multiple income streams? What are they?