First of all what is a stream of income or an income stream if you will? It can be defined as The flow of money generated by a business or individual. And to set matters straight I also believe there are two types of income streams available, conventional income and residual income.
Conventional income is derived by you working, hourly, weekly or salary and even commission. Any income where you trade your personal time for money is conventional income or linear income.
Residual income or Passive income, also can be referred to as non linear income. Residual income is income you receive based on work you did in the past, publishing a book or buying investment real estate. These types of income can be stacked and you can make multiple streams all flow together. With this type of income you can loose one stream and the other streams are unaffected.
I will not dwell on Conventional income as this is simple, you trade your time for money. The two big problems I have with this income is one: when you stop working the money stops, and two: you do not have control over what you make. Point one: When you stop working you stop earning. This includes layoff, fired, retire, quit business closing or any number of reason your job ends. We all strive to have time off work but with this type of income it is rare if not impossible to save enough to no work. If you disbelieve this just look at all the people who retire at 65 and still must work or alter their standard of living to survive. Point two: The company decides what your income level is. Oh you can work hard and work weekends and log in from home and give it 110% but what happens at year end? You must ask for a raise or in some cases you are given your cost of living raise and that’s it. Lets look at this a different way, if you are on salary making $50,000 a year that’s about $25.00 per hour correct? Well yes and no, the $25.00 is based on a work week of 40 hours therefore every hour you work overtime, check email from home and any number of things you do as a salary employee, you add to the number of hours worked and thus the amount per hour goes down. This form of income generation is not the best way to gain an income that will give you the lifestyle you would like to become accustomed.
Residual income, on the other had, can set you up in a way that can protect you for years and years. But what types of things generate residual income?
• Interest income.
You earn interest income when you save your money in interest bearing accounts. As passive income goes this is not the best way to manage your money. Interest rates you earn are usually lower than the inflation rate. But if you have money put aside rather than putting it in the bank why not become the bank? Many ways to be a private lender are available with good interest rates that bring in a useable income.
• Rental income.
The purchase of rental property in either the residential or commercial real estate market is one of the main ways people begin making a passive income. Some will tell you of problems being a landlord but for the most part this is a secure way to bring in passive income. At the time this article was written the standard in Ontario is 20% down on an income property however many ways exist that allow an investor to have less.
• Dividend income.
Stocks or shares in a company is another good passive income earner. A friend of mine us tot say “Why put money in a bank when I can buy stocks and own part of the bank?” Wise words as bank stocks pay good dividends and the share prices seem to do well over time but any good “blue chip” stock can add a passive income to your total income stream. Good long term stratgies seem to be best but use a professional when buying these as you will want background and projections to make a decision.
• Royalties & patents.
Writers, inventors, singers and some other professions earn royalty income. Inventors also earn patent income from their inventions. I have written 4 books and the royalty income is very good. I can count on a check every year for about the same amount.
• Network referrals.
This can amount to a lot of money over time. Now with the advent of the internet you can refer people to sites you believe are worth wile and when the person you refer to that site purchases something you get a commission. If it is a monthly perchase you get a commission every month! I created a page of links to sites that have software I like and use and I get a commission when these are acted upon. Also as a real estate sales person I look to referrals to sell and list property. It is against the rules to give cash but the common industry practice is to send something to the person referring the client. In come cases reducing commission paid by the referrer should they need to use your services is also an option that can create a fair amount of money for the person who refers the client.
• Network marketing.
My personal favourite is network marketing. I have been involved with 6 different ones and not successful in all of them. You need to find one that matches your belief system and has a product that you believe in. Network marketing is the distribution of products and services through a network of independent distributers. Your get paid for setting up these distribution points and for overall product sales within your group of distribution points. Millions of dollars can be generated this way but it takes a commitment of three to four years to get this to a point of making a large monthly income. If you can sponsor 20-30 people you will have a successful network marketing group that will afford you a very good income.
• Earn membership fee.
You can set up a membership website that can provide resources, knowledge and support. Then people pay a membership fee to use your resources, knowledge and support. A fitness club, dating site, paid forum or directory are the most common places associated with this type of passive income.
These are just some of the ways a passive income can be made. By utilizing these multiple sources I am able to weather a storm of issues while others around me are capsized by the slightest wave.
To give you one example: I was recently laid off from a contract position I held with a training company. The reasons are not important but it suffices to say that the company thought they could afford my services but as it turned out could not. For some people this is a devastating blow. The loss of a full time contract would hamper what they could do. Fortunately for me I have Multiple Income Streams and by simply boosting one of the other streams I have I was able to absorb the loss. As a matter of fact, because I now had more free time I was able to develop 2 more streams to feed into my overall earnings.
If you wish to consider yourself an entrepreneur you must be open to creating these income streams. Buying a coffee shop and working in it is just buying yourself a job. Creating streams of income that can allow you true financial freedom is being a true entrepreneur.
Alan Lake
