“ Everything you want is just outside your comfort zone“
Robert G. Allen
With the inflationary pressures we are feeling globally, it literally pays to have more than one source of income. I have read that the average millionaire has at least 7 sources of income. I know we are here to learn how to get our personal finances in order and 7 streams of income may seem like a lot for a start. As usual, my recommendation is to start small and grow. But start all the same. So don’t get overwhelmed, pace yourself. Let’s discuss the sources of income your need this year.
- Earned Income
Most of us will fall under this category. This is income you receive by giving your time in exchange for payment whether as a Commission, Salary, bonuses, or Allowance. This source of income needs low leverage as you just need to agree with your employer, the working hours, and the payment.
There is little room to scale up the income, and this will usually be through a salary increase (which may be hard, but not impossible in the current economic times). Another avenue would be to change jobs so that you can have a salary bump.
- Self-Employment Income
If you are in business especially if you are working for yourself i.e. self-employed then, the salary, profits, or drawings you take from the business qualify as earned income because you trade your time to earn them as well. This income can be scaled to a certain point, by opening branches and hiring employees. Sometimes it can be a bit of a challenge to grow especially when people require services specifically from you as a professional e.g. doctors, lawyers, accountants, engineers, architects, social media influencers, and many more
- Business Income
This is income earned from your business. Business income is unlike self-employment income because it is not dependent on you physically putting in the hours. It can be any business under the sun. If you run a farm where you sell packaged products, or you have a manufacturing plant or are in supply chain where you offer businesses means to get their products to their customers, etc. We all need this income stream because while it may not be very easy to start it, scaling it is possible with the right structure and capital injection. As we work towards financial freedom, a business that will outlast you is a key pillar.
- Investment income
This is the income you get from investing in different financial instruments. Investment income comes in the form of dividend income from Investment in Share e.g., at the stock exchange or Savings and Credit Cooperatives (SACCOs). It could be interest income from SACCO deposits, Money Market funds, Treasury Bills and Bonds, Fixed deposits with banks, etc. I will emphasize that it is vital to keep growing this portfolio of income, first because it ensures you have diversified your risks and secondly, because the income is mostly passive and as we work at building wealth we want most of our income to come from passive sources, such as investment income.
5. Income from Capital gains on assets
This income arises from the growth in the value of assets that you have invested in. Typically, capital gains are experienced in property value increase and increase in value of Stock or Shares in a company. This is a regular source of income for value investors, where you hold and then sell once the assets appreciate in value.
6. Rental Income from rental properties
If you get a good property manager, it can be a really good source of passive income. The trick is to construct your properties in a good location to ensure a high occupancy rate throughout the year. There is the option of renting out the property long term or you could have the property in short term rentals as an Airbnb.
7. Income from Chama
Here I don’t mean the money you get from the merry-go-round. That money is usually interest-free, mostly it is not invested. There is no return. The income we are talking about is the profit or returns gotten from investing the Chama members’ contribution. Whatever your chama business model, if well done it can be a good source of income if the members’ contributions are invested well. This is an important source of income, do find a chama that works well for you.
8. Venture Capital investment income
If you are pressed for time or entrepreneurship is just not your thing, this may be an important income source for you. Of course, you don’t have to have bucket loads of cash, but you do need to have some cash, as well as a good eye for assessing businesses. As with most things, you get better and better with time. This is one of the fastest ways to grow your wealth, especially if you land a good business partnership, so it is worth looking at. Largely, this has been a preserve of sophisticated investors, because they can afford to burn substantial amounts of money without going into bankruptcy so for this one we can tread with some extra caution.
9. Royalties from use of intellectual property
Intellectual property is quite broad including, Music, Artwork, Performing Arts, Books, Photography, etc. Where you have created something for which other people can benefit, you could share this while earning some payment for its use. This is one of the best passive incomes because you probably only need to create the masterpiece once but it can be used limitless time.
Other than the earned income, most are scalable meaning you are the one that determines your limitations, the sky is the limit. What is true is that it is extremely risky to rely on only one single source of income, because it can easily leave you destitute. Of course, the income streams can be built one at a time, so that you don’t take on undue pressure and end up losing it all. The idea is to continue working on it so that you get a measure of comfort. It takes time and effort, but it will
be well worth your while when you don’t have to physically work to sustain your lifestyle.
As always, I’m rooting for you! Go on, start the hustle today.