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Why Have Multiple Streams of Income?


You can probably see the value of having many different streams of money flowing into your life, even if they only add up to what one big income source might bring in. Like a farmer who has more than one source of water for his crops, you are more secure if you have several sources of income. Any one of them can go dry and you'll still have something coming in, unlike the employee who has just his paycheck and loses his job, or, to follow our metaphor a step further, the farmer with one well that goes dry.

That much is easy to understand, even if you haven't yet started working on developing those multiple streams of income. But there are two types of income. If you sell cucumbers at a farmers market, for example, you can make money only as long as you are working. But what if you are the guy who owns the market and rents the spaces out? In that case, once you have the place set up and hire a manager, you get to go on vacation while the money keeps coming in. This could be seen as investment or business income, but at the point that you automate the process by hiring a manger, it is residual income.

Also called passive or recurring income, this is money that continues to come in after your initial efforts to build it. That's better than money you have to keep working for, isn't it? To return to our farming comparison, it's like the difference between carrying water by the bucket to water one's crops and diverting a stream to irrigate them automatically. It can be useful to have all sorts of income sources, but the residual ones should be developed if you want greater financial security.

Developing Streams of Income

Years ago I regularly played chess with an insurance salesman who was 50 years old. He had plenty of time to play because he had already retired. How was he able to quit working at such a young age? By selling policies that paid him a commission every time the holder renewed them. Every year people renewed their policies and he got a percentage. He probably worked hard to get to that point, but then the income continued to come in without additional work.

At the start of 2005 I built a website on how to remove carpet stains, putting in one long hard week at the computer (I had been a carpet cleaner at one time). I mostly ignored the site in the years that followed, and spent less than a dozen hours a year maintaining it. Meanwhile almost $50,000 flowed into my bank account from that site (howtoremovecarpetstains.com in case you're interested). Traffic to the site dropped off and now the revenue is down to less than $200 per month. But there are two important points related to this. The first is that while the money was flowing in it allowed me to spend time developing other sources of income. The second point is that I did develop other sources; it's a good idea to keep working on new streams of income even if things are going well with the others at the moment.

My wife and I sold a mobile home on a lot a few years back. We are taking payments on it, which allowed the buyer to purchase it more easily. He bought it as an investment and is renting it out -- which provides him with an income stream. Selling it that way allowed us to get a higher price, and we get good interest as well. The money comes in every month. We have to renew this income stream eventually, of course, perhaps by buying another property and selling it for payments again.

I get a newsletter from a man who buys high-dividend stocks. He doesn't worry about where the prices of the stocks go from month to month, because the dividend checks just keep coming in. The work was in doing the research necessary to find solid companies that are unlikely to cut their dividends. Then once he invested a chunk of money the stream flows without much additional effort (but of course occasional research and new investments are a good idea).

Here are some examples of residual income:

  • Rent collected from real estate
  • Dividends from stocks
  • Interest from secured loans
  • Rent from a tenant in the house
  • Pay per click revenue from automated websites
  • Ongoing commissions from selling things
  • Royalties from writing a book
  • Licensing royalties from an invention

It can be helpful to have several sources of non-residual income too, like a job, a stand at the flea market on weekends, a second job, a profitable hobby, and so on. But try to take some of the money from these sources and invest it into income that is keeps coming in after the hard work is done.

To finish with a personal story, my wife and I watched for years as our internet business revenue dropped off by over 80%, and we're watching as it continues to fall. But having several source of income has made the adjustment easier. I have royalties from my book, 101 Weird Ways to Make Money, interest coming in from a loan secured by real estate, and payments from the sale of real estate that will continue for a few more years. And although it has been difficult to adjust to our falling income, our online business still generates enough to pay most of the bills, and various jobs (my wife teaches part time, I paint and do other work) and small business projects provide enough excess income to invest into the next residual income source. It is comforting to know that we can't lose all of our income at once.

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