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Most millionaires use multiple streams of income to build their wealth steadily over time. Even if you work in a career with high salary potential, there is an eventual cap on the amount of money you can earn based on your time alone. Creating multiple streams of income removes this restriction on your wealth building and increases your earning potential.
A note on millionaires: In reality you probably want to become a millionaire eventually, unless you plan to live off of less than $40,000/year. While “millionaire” can trigger visions of lavish lifestyles, retiring off of $1-$2.5 million will provide you a comfortable but relatively ordinary lifestyle living off of $40k-$100k annually. Most millionaires do not have garages full of Ferraris. They just do not stress about money.
Importantly, building multiple streams of income is not only important for those seeking to build huge wealth. Accumulating additional streams of income reduces financial risk in your life and provides you more options for flexibility beyond simply establishing wealth. While wealth building is an obvious reason to pursue multiple streams of income, here are five reasons that having multiple streams of income will improve your life immediately:
1. Emergency Preparedness
Say you are early in your career but have a great salary with a company you enjoy, and you imagine working there for the next ten years. That company declares bankruptcy and lays off much of the workforce, including you. Your great salary is gone, and your plan to advance within that company instantly ends. How are you paying rent this month? If you are far enough on your financial journey to have an emergency fund, do you have to pull money from it immediately?
If you have other sources of income, probably not. If you have one source of income, losing it is detrimental and immediately sends you to your emergency fund—or worse, into debt. Add just one stream of income, and the situation is completely different: You lose one, and you may be able to tighten up your budget by removing expenses like traveling, dining out, or even contributing to any retirement account that lacks a match to survive on the other for some time. The Budgetnista, Tiffany Aliche, calls this a “noodle budget,” meaning the budget where you are eating ramen noodles for dinner and just getting by temporarily on less income. It is not glamorous, but being able to cover basic needs with your second income is powerful financial security.
The more streams of income you have, the more you increase your financial security. Imagine a circular table top. If you have one stream of income, you are supporting that table with just one support leg under the center of the table: That leg is enough to keep the table up, assuming there is no breeze or Patrick, who runs into every table imaginable, does not live with you. Adding another leg adds some stability. Getting to three or four table legs adds a lot more. The more legs, or income streams, the less likely that table will fall.
Of note, if you have a partner or larger family unit where multiple folks are earning incomes, these are multiple streams of income. If you and a partner both earn an income, you have two legs holding up the table and additional security beyond only one of you earning an income.
While job loss is the largest emergency for which multiple streams of income helps, it is not the only one. If your expenses rapidly increase due to a health issue or other life changes, having multiple income streams sets you up to adjust to those realities more quickly and in more creative manners, making you more flexible in an emergency.
2. Flexibility
Imagine that a family member is diagnosed with a terminal condition, and you work one in-office job to receive your entire salary and have limited leave. Can you take the time to go care for that relative without overwhelming financial detriment?
If you have multiple streams of income, taking time off is more likely because you simply have more choices. You may be able to go on extended unpaid leave with a full-time job that provides your largest income while surviving temporarily off smaller streams of income, perhaps with a lower time commitment or the ability to conduct any work remotely, while you focus on taking care of the important person in your life.
Not all streams of income are the same, but the more you have, the more likely they are to be diversified in a way that allows you to prioritize some over others at different moments of life according to your priorities. Re-prioritization is not just for a big health crisis. On a much smaller scale, I started an Etsy business in 2020 that made five-figures in its first two years. When I put in the effort to frequently post new items, it is easy to make it a five-figure business. However, last year, I built phippentax.com and created a content plan to produce articles like this one. My Etsy business took a backseat since I was also working full-time, writing resumes in my spare time, and still dedicating time to my (somewhat obsessive) hobbies. The Etsy shop did not hit five-figures in year three. However, it still nearly-passively earned money and did the job I needed it to do in 2022 by paying for the in-country expenses for my parents, Patrick, and me on a two week trip to Crete.
As you acquire income streams, you learn how to play with them to increase and decrease both your time spent on them and the money earned from them according to your priorities in that moment and the success of certain income streams over others. Full disclosure: I have had income streams completely fail. I created sports calendars to start selling in 2020. Worst timing ever. So I pivoted and now have a successful vintage Etsy shop. While sports calendars were not great in March 2020, sending a beanie baby to a relative you could not see in-person was a valuable gesture of love.
Finally, the flexibility of having multiple streams of income lets you lower the threshold for what you will tolerate in a job with an employer. If you have five streams of income, and four bosses (one stream of income is your own business!), firing the worst of those four bosses is not a big deal. You may recall that Patrick left his job when his employer wanted to force him to return to the office after he successfully worked remotely for more than two years, a time during which he earned two promotions to the highest rank in the GS-scale. He could say no thanks because we have multiple streams of income. Even though that was the largest income stream we had at the time, we could afford to lose it and rely on the others. Flexibility gives you a lot of power over your happiness.
3. Personal Growth and Knowledge
Scott Trench highly recommends identifying side hustles that relate to your day job when first starting on the path to establishing multiple streams of income. This fosters a compounding knowledge effect that helps both the side hustle and main hustle, propelling your earning potential in both your career and side hustle forward.
Even if you generate streams of income that differ somewhat from each other, you will likely find overlap. I learned to use MailChimp when working at a nonprofit in 2017 and now use it for our Phippen Tax & Financial Services newsletters. Building phippentax.com has helped me think through how to improve my day job’s websites as my team’s Content Manager. Writing resumes and guiding folks through negotiation processes has improved my own negotiation skills to a point where nothing feels impossible when negotiating at my day job.
The more skills you develop, the more you will see how they overlap. Communicating with Etsy customers, international military partners, and opposing rugby teams involves more in common than you would expect. Skills translate. The more places you are improving different skills, the more you will grow your all-around knowledge set to improve your own marketability for any stream of income.
4. Passivity
The gold standard for additional streams of income is generating passive streams of income. This is more difficult than a lot of folks assume. In my experience, very few truly passive income streams exist, other than living off of 4% of a sizable brokerage account. That said, as you get better at running different streams of incomes, you can often make them more passive for you. This is what I did with my Etsy shop: I can still earn a few thousand dollars a year by letting it sit and going to the post office each week, making it close to passive.
Particularly if you are creating your own businesses, passivity is a great long-term goal to have. For example, Patrick and I are very hands-on with Phippen Tax & Financial Services right now, but we have plans to remain involved in parts of the business we love while hiring assistance for the parts we do not as the business grows. Many streams of income go through different periods where you may choose to be more hands-on to earn every cent and others where you may choose to outsource or scale back and enjoy smaller earnings.
Real estate investing is another great example where scalability is possible. If you buy a cheap property, put in sweat equity, rent it out, manage it yourself, and conduct all repairs, you will earn a lot of money but also spend a lot of time on the property. Conversely, you could buy a turnkey property, hire a property manager and an accountant, and enjoy the proceeds in a near-passive manner. Income streams with the flexibility to increase income at the expense of time and vice versa are wonderful ways to survive the consistent changes of life.
5. Wealth Generation
We could not skip this one. It is easier to build wealth with multiple income streams. Once you have multiple income streams, the best scenario is to try to live off of one and save and invest the others. Not only does this improve your emergency preparedness since you know you could lose an income, it also helps you build wealth quickly, putting away some entire incomes towards your future.
At two or three incomes, you are probably building wealth faster than with just one income. Beyond three, you have more flexibility, both in choices and in your wealth generation. You could simply generate wealth faster. You could also choose to take a small income stream and use it for fun, like I did when we used my Etsy earnings to fund our trip to Greece. It is really fun to have a small income that is completely dedicated to fun adventures/nonessential items.
Even if you have no passion to build great wealth for yourself, you should not write off wealth generation entirely. You may want to create generational wealth for your loved ones. “Generational wealth” often makes us think of Kennedys and Rockefellers, but there are many degrees of generational wealth. I experienced generational wealth: My grandparents saved their whole lives to give me $20k when I graduated from high school. This meant that I always had a safety net. That is generational wealth. My parents both worked as teachers, my mom took on extra responsibilities as a team leader to increase her salary, and my dad worked as an adjunct professor at the local college. Through these efforts, they increased one stream of income and added an extra to typically have three streams of consistent income. This allowed them to save and pay for my college education. Having college paid for propelled my financial journey, since I avoided the debt that Patrick and many of my peers needed to pay off before getting to zero.
Generational wealth is not just for doctors, lawyers, and business executives. It is for a tree clearance foreman and a bookkeeper, like my grandparents. It is for two teachers, like my parents. And it can be for you if you are creative enough to pursue multiple streams of income.
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