Different Types of Income Streams


There’s a lot of talk in the world of personal finance about the importance of having multiple income streams. On a high level, having multiple streams of income helping you reach your financial goals sounds pretty great. However, it can be tough to know where to start – especially if you’ve only ever worked a traditional 9-5 job. When you start building a strategy for creating different income streams, it’s important to know a few different things:

1. Why these different streams of income are important, or what goals they’re going to help you achieve
2. What types of income streams are available to you
3. What types of income projects make the most sense for you and your family

As always, the most important thing on this list is your why.

Why Should You Have Multiple Income Streams?

For most people, the income they receive from their full-time job is enough to cover most of their budgeting basics. Some months may be tighter than others, but they often feel stuck because they’re not sure how to consistently live more comfortably without asking for a raise every 3-6 months. This is where having multiple streams of income can help.

Developing different streams of income empowers you to reach your goals more quickly, protects you against the possibility of losing one income stream, and helps you to grow your wealth for the long-term. All of these things can be part of your why for developing multiple streams of income, but you should also think through tangible reasons and benefits that are relevant to you.

For example, are you looking to grow your cash flow each month to travel more? Do you want to use the extra income you’re earning to save for your child’s college education? Are you working toward a short-term savings goal, like a home purchase? Do you have a hefty debt load that you want to pay off ASAP? Knowing your unique “why” will help you to stay motivated, even when building multiple streams of income feels overwhelming or tiring.

Primary Income

If you’re single, your primary income is the only primary income you have to think about. However, if you and your partner share finances, one of you likely acts as the “breadwinner.” Many of my clients are women and are also the breadwinners in their families, but that’s not always the case. Regardless of who the primary income is coming from, the income itself usually checks a few boxes:

  • It covers all or most of your expenses
  • It’s a W-2 income, or a steady income from self-employment
  • It’s the most reliable of your income streams

Primary income is usually the paycheck that comes from your full-time job every other Friday. The benefits of having a steady primary income are that you can typically always count on it as a baseline for your budgeting and financial planning. However, if you’re 100% reliant on your primary income, you run the risk of financial instability if you should ever lose your job or become unable to work.

Passive Income

Many people look to increase their passive income first, for obvious reasons. Our full time work can be exhausting. When we pile on all of our other responsibilities, there aren’t very many hours left in the day to grow multiple, active income streams. Figuring out how to incorporate passive income into your financial plan is one of the best ways to start increasing your cash flow and growing toward your goals. However, not all passive income is created equal.

The Passive Income Myth

The idea of passive income is incredibly appealing for most people. In today’s world with increased access to resources and tools through Pinterest, podcasts, different blogs, and social media – there are hundreds of thousands of people out there selling the idea that they’ve “made it” overnight using passive income strategies. They might be promoting their recent blog, their sponsored podcast, or an affiliate program they’re participating in. There are two things to keep in mind here:

1. Nobody is an overnight success.
2. The “passive” income strategies they’re promoting usually aren’t 100% passive.

The truth is that passive income takes time in the vast majority of cases. Building a blog, selling affiliate courses, or selling an online product or services requires a big investment of time up front. With time, that investment can start to pay off, with minimal ongoing work from you. However, on the front end, these are definitely not “passive” income streams.

Interest and Dividends

One of the only true ways to earn passive income is to grow the money you currently have through investing. Dividends are the share of the profit you bring home as the part owner of a company (which you are when you purchase stock). Interest, on the other hand, is money you earn on a loan you give to a company. When you buy their stock, you’re technically loaning them funds, and those funds earn interest over time. Investments that earn interest, or pay dividends, tend to grow. The key is spending time in the market, and investing for the long-term rather than seeking a quick pay out.

Although you may need to spend some time up front coordinating your investments or working with a financial planner who manages them for you, adjusting your portfolio quarterly or annually to stay on track to meet your goals is by far the least time-consuming of other so-called “passive” income strategies you could pursue.

Active Income

Many additional income streams that people choose to incorporate into their financial plan are relatively active. Although the revenue might be recurring, these revenue models require work on your part. How much work you’re willing to pour into these active income streams is entirely up to you! Some will require more than others, and some will be more enjoyable for you than others. Typically, I recommend that people pursue active income streams that energize them. This is especially true if you’re already working full time and have a limited amount of hours in a day to dedicate to this secondary income stream.

The “Side Hustle”

Most people who are pursuing an additional stream of income pursue a side hustle. This side hustle is a job or freelance work that you take on in addition to your full time career. In many cases, people’s side hustle evolves into their full time job, especially if they pursue something they’re passionate about. I’ve seen side hustles take many different forms. A few ideas might be:

  • Starting a monetized blog
  • Growing your social media presence and promoting products through affiliate programs
  • Selling a course or online product
  • Repurposing items and selling them for a profit on Facebook Marketplace, Craigslist, or eBay
  • Picking up freelance writing, editing, or graphic design work
  • Dog walking and pet sitting through the Rover app (or by advertising around your neighborhood)
  • Selling handmade products through sites like Etsy or in-person at your local farmer’s market
  • Purchasing a rental property and becoming hosts on sites like Airbnb or VRBO, or renting it out to long-term tenants (remember: this is a lot more labor-intensive than it sounds)

Side hustles can be tough work, but if you pursue work that you love doing, it will help keep you motivated even when you’re feeling the strain of working in addition to your full time job.

Adding Income Isn’t the Only Way

Although having multiple streams of income can help you achieve many of your financial goals, it isn’t the only way to free up cash flow, build your savings, or pay down debt more quickly. In fact in some cases it makes more sense to find ways you can cut expenses rather than burn yourself out trying to grow your income. Everyone’s situation is unique, which is why it’s so important to create a comprehensive financial plan that puts you on track to meet your goals without totally sacrificing a comfortable lifestyle, your values, or time with the ones you love.

Mary Beth Storjohann, CFP® is an author, speaker, and financial coach who takes a fun, no-nonsense approach in working with individuals and couples across the country, helping them make smart choices with their money.

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