Multiple Streams Income

I explain my core belief about money to my friends this way: there is a great disparity between being rich and being wealthy. A rich person receives his or her paycheck and says, “I’m rich!” The money is completely gone before the next check rolls around, or in many cases it was gone before that check ever came in.

This same person gets a pay raise and exclaims gladly “Now I am even more rich!” The increase in cash flow, in the ‘rich’ person’s mind, is equivalent to an increase in their day-to-day means – what they can spend. The extra income is used to buy more expensive versions of the same things this person used to buy with less money, and/or to purchase unnecessary trinkets and luxury items. As they collect paycheck after paycheck, the money goes out the door just as quickly as it comes in. This is the never-ending cycle of the “rich” person.

Now, let’s talk a little about wealthy people.

The wealthy person receives his or her pay, and thinks “This is good. I need money to live. Now, what is it, exactly, that I need?” After making the necessary arrangements to have their needs met, the remaining money is invested, saved, or used to purchase things that will benefit the wealthy person and/or move him closer to his future goals and pursuits.

When the wealthy person receives a raise in pay, the extra money is just more to sock away or use otherwise to increase the value of that person’s life.

Rich vs. Wealthy

So in the simplest terms, the rich person lives at or above his means, while the wealthy person lives below them.

Whether you have a single source of income, or multiple income streams, the ability to handle your finances is the difference between being a rich person and being a wealthy person. Which type of person are you?

The other day, I changed the headlight assembly in my car after one of my headlight bulbs blew out and melted the hard plastic around the socket, making it impossible to connect a new bulb to the existing unit. I got to thinking about how much it would’ve cost me to take my car to the shop and have this done, had I not known how to do it myself.

My local auto shop is full of experienced mechanics who know what they’re doing. Problem is, they charge me $90/hr whenever they work on my car. When my blinker switch (technically referred to as the multi-function switch) went bad last year, I got a price quote at around $400 for the shop to fix it. Instead, I bought the part for about $30 from Auto Zone and spent the better part of a Saturday afternoon replacing it myself. Granted, it was a fairly involved task – I had to take apart the steering column and remove the  ignition cylinder, among other things, to get to the switch itself – but it was well worth the extra trouble to save so much money.

Replacing the headlight assembly might not have saved me a ton of money (the part cost $52 and would have taken less than half an hour for the mechanics to install) but it was also a matter of convenience – I did the job in my driveway as opposed to hauling it across town to sit in a hot waiting room amid the uncomfortable stench of coffee, motor oil and cigarettes.

What I’m getting at here is that it would benefit you to start thinking of your skills and knowledge as a source of passive income in the form of money saved. While I don’t ever recommend performing a repair, maintenance, or installation job you don’t feel comfortable with, I do advise you to stop throwing money at your house, your car, your boat, or whatever, and do some research first. At the very least, knowing how something works or how something is done will help you to be more conscious of what is happening around you each day. At most, you can develop your repertoire of handiwork by getting your hands dirty.

Some examples of things you could do yourself instead of paying someone an exorbitant rate to do so:

- Installing kitchen cabinets.
- Minor auto repair and maintenance, such as oil changes, topping off fluids, replacing filters, changing fuses, bulbs, or batteries.
- Drywall repair.
- Electrical outlet replacement.

This is my disclaimer: As I’m sure you’re well aware, be careful when dealing with anything involving electricity, use caution and ask for help and advice from friends who may know more than you do, and most importantly – don’t attempt anything that requires a special tool or professional certification unless you are fully qualified to do so, such as charging your air conditioner or smoke-testing your plumbing system.

I don’t believe that house flippers and real estate investors are anywhere close to being the same animal. They have very different reasons for buying property, and their methods and desired outcomes require much different means of planning to execute. Lots of people have made lots of money flipping houses, and I’m not faulting anyone for doing so. If you have a nose for it and you make money doing it, more power to you. But when I look at the alternatives to flipping houses, it makes me want to slap my hand over my eyes and bow my head in shame. It makes very little sense, as I see it, not to invest for the long term, and I’ll tell you the reasons why.

If you’ve ever watched a show on television about flipping houses, I’m sure you may have said to yourself at some point, “I could do that. I could make lots of money at it, too.” That’s because it’s tempting to trust yourself – to believe that you have the eye for finding diamonds in the rough and the mental prowess to pull it off time and time again. The idea of making tens of thousands of dollars in a short time appeals to lots of people. It has a similar appeal to playing Blackjack in Vegas or day trading the stock market – it’s exciting, in a sense. It’s the thrill of winning, and it’s easy to let yourself daydream about winning big. But in all those situations, you have to put a lot at stake. More, if you ask me, than the winning is worth. You are gambling, putting a large number of resources on the line for what will only be a significant gain if you get really lucky.

There is one fundamental reason why this approach to handling your money is foolhardy: because a wise person looks not only at his or her potential for gains, but also at what he or she stands to lose. Whether you’re gambling with short-term stock trades, a game of cards, or a house, you’re forced to put lots on the line and cross your fingers. I can think of much better ways to live my life than that.

Let’s say you pay $100,000 for a fixer-upper, putting down 20% ($20k). In the current market, the house is worth about $150,000. You spend another $20,000 fixing it up and sell it at market value, for a net gain of $30,000. Not too bad for a few months’ work. If you have a background in construction and/or your three best friends are a plumber, a painter and an electrician, you’re in an even better spot. But if the market goes down or you run into any snags during the process, you’re stuck – financially crippled because you can’t unload your investment and take profits. You’ve effectively sunk $40,000 into an investment that is returning nothing.

Now imagine you’re the buyer of the same house after it has been fixed up and sold to you at $150,000 – market value. You take the same $40,000 the flipper spent on a down payment and repairs, and put the whole chunk toward your down payment instead. Then you rent out the house for $1,500 per month. The flipper would’ve made $30,000 right away, assuming the value of the house stayed the same over the course of a few months. That would’ve been it; assuming he was successful at fixing and reselling it, the payout from that investment would’ve ended at that point.

Now, if you rent the house instead, you’d make $36,000 over the first two years. Much of this is likely going toward your mortgage and upkeep, but you have still nearly doubled your money, earning a 50% return per year. But here’s the difference, as I stated above – even if the value of the house goes down, you will still make back the difference on the mortgage ($110,000) in rent payments after just 6 years.

Granted, you will always need to factor in things such as repairs, maintenance, cleaning, property taxes, insurance, etc. But the point is, you have now created a stream of passive income that will pay you somewhere in the neighborhood of $1,500 every month for the rest of your life. Even though you have all those additional costs associated with owning the property, you are paying for the vast majority of them with someone else’s money. That is the key concept I want to teach you through this website – that by providing a product or service that someone is willing to pay for (in this case, a nice place to live) you are able to make money work for you in more efficient ways. I don’t know about you, but almost without exception I’d rather spend other peoples’ money than mine.

The work involved in scheduling repairs, interviewing tenants, and paying your taxes is minimal compared to the hours you’d spend on most other money-making activities. And if maintaining rental property seems like it would be too much for you, there are management companies you can pay a small percentage of your rental income to take care of all the “dirty work” for you. By the time the mortgage is paid off, that recurring income becomes almost a purely profit-yielding venture.

Sure, I could go out and buy one really big, nice house – and spend the next 30 years trying to pay it off. Or, I could do what I’m doing now and be in the process of buying my third smaller home. Now instead of working for “the man” for the next forty years, I will essentially be living rent-free because my tenants are footing the vast majority of my mortgage bills. When three properties are paid off in less than 20 years (I use my regular income from my job to pay my mortgages down faster with extra principle) I will not only have a paid-off house, but a source of recurring income until the day I die. It’s quite a long-term strategy, but it’s one I’m willing to work for.

The bottom line is that your style of generating income has to be synced to who you are as a person; it has to feel good to do things your way. Peace of mind speaks volumes above what anyone else tells you you should do. But don’t throw wisdom out the door and remain completely within the confines of your own gut instincts, either – doing so can lead you to make one poor decision after another. If flipping looks more attractive than landlording, do what you feel will work for you. I’m simply telling you that from my perspective, the reduced risk and greater potential for long-term return on investment makes renting a far more attractive option for me.

I currently have about half a dozen ways to make money each month, if you include my day job, which I am hoping to retire from about 25 years earlier than the rest of the workforce.

If I were to divide my grouped streams of income further into individual sources of income, the total would be somewhere around twelve. That’s because within each of my multiple income streams I have a few different threads of cash flow. For example, I have an investment portfolio that can further be divided into individual stocks. I have online income that is derived from several unique websites. I own rental real estate property, the income from which is provided by multiple tenants.

I consider each of the examples above to be cases where many unique threads appear within each stream, ie., the stock market is a stream of income, and the stock I own in World Class Stained Glass, Inc. (not a real company) is a single thread in that stream.

So you can see how having a solid group of threads per stream is almost always better than having just one. “A cord of three strands is not easily broken,” says the Bible in the book of Ecclesiastes. When it comes to income, that statement is infinitely true. Read on through the other articles and posts on this site and you’ll learn interesting and creative new ways to create recurring cash flow that will lead you toward multiple streams of income.

Let’s say you really like your job. Well, that’s probably asking too much. Maybe you’re like most of us and you just barely get by at work – you don’t hate every second of it and you’re at least relatively good at what you do. You slave away for however many hours a week and you receive one paycheck. A single amount, say $2,500 per month after taxes (based on an average annual income in the U.S. of around $40k per year). This amount has to get you through to the next time you get paid.

What happens if you lose your job?

Well, you’ve just gone from an income stream of thousands of dollars per month… to absolute zero. That’s right – nothing. If you’re lucky (read: fiscally responsible), you have some savings that will get you by until you find your next gig. Maybe you start living off of credit cards to make it through.

So now, trade that one job that earns you $2,500 per month for five different income sources each netting you $500 per month. Even if you lose one of these streams, you still have a large percentage of your income remaining from the others.

“But why should I quit my job?”, you ask. “And why would I want to work five part-time jobs when I can just have the one?”

I’m not suggesting you quit your job, and I’m not talking about going out and applying for multiple part-time jobs. That would be a ridiculous way to live. What I’m referring to is the factor that makes income passive – you make money by doing very little.

Depending on where your search for passive income streams takes you, you probably won’t even have to quit your day job. And if those new multiple income streams are truly passive, maybe you won’t want to! This website contains tons of information on various types of income and gives you tips on making them earn for you while doing the least amount of work possible.