Multiple Income Streams

This post is primarily geared toward younger individuals just starting out after college or from graduate school. However, the information can be used by anyone looking to boost income in order to increase retirement savings, pay off debt earlier or simply to put them in a better position financially.

In financial planning we often talk about risk management as one of the bricks to the foundation of any solid financial plan. Generally, when we say risk management we think of auto, home, life, disability and other insurance coverage in addition to an emergency fund. Another area of “insurance” would be creating additional or multiple income streams as a hedge against losing an income source due to downsizing, termination, etc. If none of the aforementioned negative events occurs, then the extra income can be used to bolster retirement savings, reduce debt, or save extra for college. The point is that if one job dissolves there are other income streams providing cash flow.

The question then becomes how to find these additional income streams or “pipelines”. One of the easiest would be to simply find another part-time job, preferably doing something you enjoy. This could be working at your child’s school as an aid, waiting tables an earning extra money in tips, or simply working hourly on the evenings or weekends at a local business.

Individuals may also consider starting their own business, part-time, to generate additional income. One area to look is as an offshoot to what the individual is currently doing. For example, if the individual is a teacher, they may also find it enjoyable to do consulting to teachers and schools in a particular area of expertise. Another example would be an accountant finding extra work from January through April doing tax returns. The main idea here is to leverage an individual’s current knowledge and expertise into another income stream. The learning curve is less onerous. From a tax perspective, the IRS allows certain deductions if you have a legitimate business and expenses.

One word of caution: be careful of starting a business that relies on the individual working hard to make someone else money (i.e. multi-level or network marketing organizations). Often these types of “businesses” recruit naïve individuals to sell their products and recruit others to the sales “pyramid”. Generally, those making any substantial income are those at the top of the pyramid (i.e. the founders).

Should you consider exploring another income source, feel free to contact our office and we’d be happy to answer questions and provide insight as to the particular path you choose to take.