The journey to achieving financial freedom is like the real-life ability to restart from the last checkpoint of a computer game, as opposed to the beginning of the game.
Borrowing from that analogy, you want to structure your financial life in a way that if sh*t hits the fan (as it always does) you have other sources of income to cushion you from having to start from zero.
Attaining financial freedom is a double-edged sword that involves managing two key aspects of your finances:
- Living below your means by managing your expenses.
- Gradually increasing your income streams.
If you’re a visual learner, you can watch the video on our YouTube Channel:
What are income streams?
Income streams are different sources of money. Ideally, you should have more than one source of income.
There are two types of income streams:
1. Active income streams
Active income requires you to perform a task in order to earn. You sell your time for money, for example, your 8 to 5 job.
2. Passive income streams
Passive income streams are ways of making money that doesn’t involve renting out your time. It’s money earned either from investments or work you performed in the past and doesn’t require you to put in additional work.
For example, an author who publishes a book continues to earn money for years without necessarily putting in extra effort.
We’ll cover other sources of passive income in detail in next week’s article. For today, let’s tackle how you can create multiple income streams to achieve financial freedom.
Why should you have multiple income streams?
1. You have hundreds of bills to pay, why should you depend on one income?
I don’t have to explain that one, right?
Your bills are loyal, they’ll never leave. But your income is always fighting to either reduce or dump you altogether!
2. The ultimate flex is having options!
Attaining financial freedom is all about having options:
You don’t have to get stuck in a job that you hate, you can quit and still manage to pay your bills…
You don’t have to stay in an abusive relationship simply because the other person has the financial muscle to fund your life.
Had a baby and want more than 3 months of rest? Diversify your income streams.
And for people who hate mornings like me, you can find a workplace that understands that a job is not something you go to, but something that you do.
Do you see where I’m going with this?
Money gives you freedom in form of options. You’re not stuck with just one choice.
When you have multiple income streams, you gradually gain income security. The old rule still applies: never put all your eggs in one basket.
3. It allows you to take up more risks
You can’t gamble if you have just one source of income. You can’t speak up at work when you know your life depends 100% on that paycheck. You can’t risk starting a business when you know that failure means being completely wiped out.
When you have multiple income sources, you can explore higher risk, higher reward opportunities which are usually the best places to learn.
4. You’ll have more fun
One of the most popular personal finance advice is ‘just travel the world, the money will come later.’
From where? Where will the money come from if I don’t have secondary income streams in this era of job insecurity?
There are many reasons that prevent me from ‘just dropping everything and traveling the world’ One of them is ‘what if I come back to poverty? What if I exhaust all the money I have saved? At this point in my life, it’s not a what-if…it can happen. Sometimes when I travel, instead of having fun, I get caught up doing the Math of how much money I’m spending…
Having multiple income streams reduces this kind of financial anxiety. You can take a trip, indulge fully and still be sure that when you’re back, you won’t have to start from zero.
5. You’ll attain financial freedom faster
Think of how different your life would be if you had 7 or more sources of money every month. Instead of worrying about money all the time, your new challenge would be tracking and managing the money. Wouldn’t you rather have this hassle instead as you also explore all the wild dreams you’ve always had?
Having many income streams also means having the flexibility to retire before the stipulated age.
Never depend on a single income. Make an investment to create a second source. – Warren Buffet
The 7 types of income streams you need to create lasting wealth
1. Earned income
Earned income is an active income stream where you make money from being employed or self-employed. Earned income is usually in the form of:
- Commissions etc
For most of us, earned income is our primary source of income. A majority of people start their financial freedom journey from being employed then gradually work towards building other income streams.
Sometime back, I thought that the best and only way to get wealthy was through bagging a higher-paying job. Until I learnt from Naval Ravikant that…
“You’re NOT going to get rich renting out your time.
People seem to think that they can create wealth through work. You probably think the same too. It’s not going to work. And there are many reasons for that, the most basic being that your inputs are closely tied to your outputs.
Let me explain…
In almost any salaried job, even those that pay a lot per hour e.g a lawyer or doctor, you’re still putting in the hours, and every hour you work you get paid.
That means when you’re sleeping, on vacation, taking care of your family, or retired, you’re not earning.
Doctors who get rich, for example, open a business, a brand, a private practice, invent a medical device or process. So if you’re a doctor (or any job), you’re working for somebody else who’s taking on the risk, accountability, and owns the intellectual property in the brand/business.
So they’re not gonna pay you enough.
They’ll pay you the bare minimum they have to get you to do the job.
It can be a high bare minimum but still not gonna be true wealth when you’re retired.”
Warren Buffet was right when he said “if you don’t find a way to make money while you sleep, you’ll work until you die.”
I’m guessing this also reminds you of the popular question ‘how many income streams do millionaires have?’
According to Tom Corley’s 5-year study, most self-made millionaires have 3 or more income streams.
- 65% of millionaires have 3 income streams
- 45% of millionaires have 4 income streams
- 25% have 5 or more income streams
Now that you know this truth, if you’re currently employed, whether it’s a high or low-paying job, one of your financial goals should be to use your salary to diversify your income streams.
2. Business Income
Apart from having a regular salaried job, you can earn extra income from your business, commonly referred to as side hustle income. This could be from one source or from multiple sources.
A lot of people romanticize the idea of quitting a job (served with a side of drama: throwing out a bunch of papers and shouting ‘to hell, I quit!’) to follow your passion or become a full-time entrepreneur. From my experience, it’s scary especially if you’re not a trust fund baby.
How do you quit your job without having an emergency fund?
Without a medical cover?
Without a place you can call home?
I’d caution you against it since 50% of small businesses fail within the first five years.
A better approach, which has worked for me so far, is to use the salary from your 9 to 5 job to set up your business and diversify your income streams. You’d need to choose a side hustle that works for your specific lifestyle.
For example, I chose blogging as a side hustle because I’m generally a low-energy person. I cannot handle a side-hustle that requires me to commute to a different location or market physical goods. With time, blogging demands less and less of my time as I gradually automate most tasks, including the sale of my e-books.
I make extra income from my blog in 4 ways:
Google pays me for placing digital advertisements on this blog.
How to deal with black tax was the most requested topic on this blog in 2020 & 2021.
Black tax is the extra money that black professionals are expected to give every month to support their less fortunate family members.
Here’s what a reader said:
“This book made me escape a bullet of having to pay black tax for the next 20+ years! For 12 years, I carried the full financial responsibility of taking care of my parents. This would leave me with 0 savings and I barely had any investments yet I’ve had a good job all along. I learnt that: Unless somebody is incapacitated, I shouldn’t take over 100% of their financial lives because that’s literally disempowering them. Instead, I invested their retirement lumpsum in Treasury Bonds which which gave them an income. I’m now left with supporting their minor emergencies and my retirement fund is fattening every day! I’m buying it for all my girlfriends!”
The e-book is on SALE at 33% off this week!
A few months after starting my financial freedom journey, I learnt that:
Trying to be disciplined in your spending, summoning your willpower to avoid buying an extra cup of coffee, or forcing self-control to avoid impulse purchase is a short-term strategy. It’s more sustainable in the long-term if you create for yourself an environment where positive money habits are a normal lifestyle.
This e-book will help you create for yourself an environment that allows you to thrive!
Affiliate marketing is the process by which you earn a commission by selling other people’s products or services. For example, when I recommend the best books on Amazon, I earn a commission. This happens automatically, day or night!
I learnt how to create a successful blog that makes consistent passive income by investing in the Launch Your Blog Biz online course by professional bloggers Lauren & Alex from Create & Go who make over $10,000 per month from their two blogs.
If you have always wanted to learn how to create and grow a successful blog without being a tech guru or a pro writer that makes over $1,000 per month, sign up for their course.
I help people who:
Are struggling with debt
Are unable to make budgets that work
Want to grow their savings
Want to improve the quality of their lives
And people who are looking to diversify their investment portfolio
To attain financial freedom by offering personalized financial advisory.
4. Interest income
This is income earned from your savings and investments. It’s one of the best ways to diversify your sources of income because it’s completely passive and easily accessible to everyone.
You can easily have this as part of your income streams by investing a part of your earned income (salary) every month. At a bare minimum, you should invest 10% of your income. Employ the power of compound interest and accelerate your financial freedom by investing in the following:
- Money market funds
- Fixed income securities (Government Bills & Bonds)
- The stock market
- Real estate
4. Dividend income
Dividends are a share of profits paid out to investors. Owning shares in a company makes you a part-owner, and are entitled to dividend payments.
To earn dividend income, you invest in these companies either through buying shares via the stock market or buying unlisted businesses.
Dividend income is also one of the best ways to earn passive income.
One of the most exciting aspects of investing in the stock market is knowing that employees who work in the companies you’ve invested in show up every day to work for YOU. I know of several people who fully fund their lifestyles with dividend income.
That kind of life is not reserved #TheChosenFew. You also can get to that level of financial security by simply investing in THE RIGHT BUSINESSES on the stock market.
To start investing in the stock market, read this beginners guide.
I assure you that by the time you’re done, you’ll be swimming with the 🦈 on Wall Street!
5. Capital gains
When you sell an asset such as art, real estate, stocks, a business, or even a loan at a profit, you earn capital gains.
For example, if you bought 100 Safaricom shares in 2018 at 24 shillings (100*24= KES 2,400) and sold in 2021 at 42 shillings (100*42= 4200), you’d have earned 1,800 in capital gains.
Here is a beginner’s guide on how to start earning capital gains by investing in the stock market.
6. Rental Income
When you own rental property, you earn rental income from tenants. Investing in real estate is one of the best ways to preserve and grow your wealth.
This type of investment does require a huge amount of capital to start which prevents a lot of us from investing in real estate, but I recently discovered a dirt-cheap way of investing in real estate through Real Estate Investment Trusts (REITs)
If you’ve been looking to invest in real estate but don’t have the thousands of shillings or even millions required for the 1/8ths, 1/4s, ½ plots, or the millions required to own a house, you may want to look into investing in REITs.
REITs (Real Estate Investment Trusts) are a type of collective investment where investors pool their funds and invest in real estate projects through a REIT Manager.
Yes, you can invest in real estate without having to directly buy a house, plot, or put up rentals.
For the ultimate guide to investing in REITs in Kenya, click here.
7. Royalties and licensing income
For example, we’re all familiar with brands using a celebrity’s name to promote their products and services which earns them royalty income.
You can earn this type of income when you own a unique intellectual property that is trademarked, copyrighted, or patented. When people profit from an intellectual property you’ve created, you’re paid royalty fees.
To learn more about this type of income stream, check this article.
How do you increase your income streams every month?
When reviewing my expenses every month, one of the questions I usually ask myself is: What is one tangible way I can increase my income in the next 6 months?
I then pick a category from the 7 streams of income above and deliberately make a plan to onboard one or more in my list.
You don’t have to have all the 7 streams to achieve financial freedom. Choose what works for you. You shouldn’t invest in anything you don’t understand anyway as it’s likely to result in losing your hard-earned money which is the exact opposite of what we’re trying to achieve.
A period of 6 months gives you enough time to make a plan, learn and experiment.
If you lost your job tomorrow, would that leave you with zero sources of income? If yes, which of the above sources will you include within the next 6 months?
Latest posts by Agatha (see all)
- The Truth About Education Insurance Policies In Kenya + The Best Education Plan For Your Kids - June 14, 2022
- Bond Redemption Structure & Bond Amortization Explained - May 28, 2022
- The Best Money Advice For Young Adults: For 2022 & Beyond - May 8, 2022
- 4 Easy Steps To Creating A Personal Financial Plan For Beginners - April 11, 2022