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If you have only one source of income, losing it can be disastrous. That’s scary when you consider that job security is a myth and most businesses fail sooner or later. Fortunately you can protect yourself by having multiple sources of income.
For example, my wife and I lost some sources of income last year by choice or circumstance, but because we made money 22 different ways, our living expenses were still covered. That’s the advantage of having multiple sources of income.
What should you do to get those additional streams of income flowing? You could get a second job. That’s not necessarily a bad idea, but what if you’re injured? If you can’t work you’ll lose income from both employers. And how many hours can you work anyhow?
A better strategy is to have multiple sources and diverse types of income. In that way any one event in your life is unlikely to result in the loss of income from all sources.
To achieve that ideal income mix consider developing several of the following…
Five Types of Income
There are many ways to categorize various sources of income, but for our purposes we’ll divide them into five basic types:
- Traditional Paychecks
- Freelance Income
- Business Profits
- Investment Returns
- Project Income
Let’s look at an explanation and a few examples of each type…
1. Traditional Paychecks
A job might provide the biggest part of your income, and it can be a great way to pay the bills. But it can also be a way to find other ways to make money.
For example, my wife and I don’t need jobs (for now), but in recent years we’ve had a few. Not only did they help us diversify and add to our income, but they also led to other opportunities. For example, my wife’s Spanish students helped us find good investments, and my job renovating houses taught me skills I later used to flip a couple properties for a profit.
Getting a second job can make sense too. In fact, if you don’t get much in the way of benefits from your employer, you might be better off with two part-time jobs rather than one that’s full-time. That way, if you‘re laid off at one you’ll still have income from the other, and you might even be able to increase your hours to replace the lost income.
Check out our list of the best second jobs for ideas.
Also, consider diversifying the types of jobs you have. For example, if you work on your feet find desk work for your second job — you might still be able to do that one despite an injury. Or look for a second job that will prepare you to start a business or help teach you how to invest.
2. Freelance Income
With freelance “jobs” you’re not an employee. You don’t get a regular paycheck, but you do get more freedom and flexibility.
For example, a few years ago I spent some months working as a search engine evaluator for $13.50 per hour, and I’ve also done website-testing work. Both could be done from anywhere and worked around anything else in my schedule. Freelance writing, one of my largest income sources at the moment, is also a great gig.
In addition to working for regular clients, you can do project work. If you can design websites, translate documents, write code, do data entry, develop software, etc., you can find work on platforms like Upwork and PeoplePerHour. In fact, Freelancer lists hundreds of categories of work, so your skills probably fit a few of them.
There are other freelance gigs you can find locally. Here are some examples:
- Pet Sitting
- House Cleaning
- Uber Driving
- Dog Walking
- Running Errands
As a freelancer you’re self-employed, so you make business profits, not wages, at least as defined by the IRS. But there’s an important distinction between self-employment and owning a business. Typically, self-employment or freelance income stops when you stop working — the same as when you have a job. So you might find the next category of income more appealing.
3. Business Profits
Ideally you want income that keeps coming in even when you’re not working. A business can provide that, if it’s what we’ll call a “true business.” You may work long hours to get it going, but at some point you can walk away from the day-to-day operations and the profits will keep coming.
For example, I collect revenue from websites I haven’t looked at in months, and from pages I paid other people to write. Of course, if I was a better businessman, my website business wouldn’t have suffered a 90% decline over the years, but then that’s why we diversify our income sources and types.
To be sure you’ll get beyond the “self-employment” phase, choose your business carefully. Aim for something that’s not owner-dependent. For example, my freelance writing clients want my writing, so I couldn’t easily hire others to do the work for me.
But you don’t have to wait until you’re rich enough to buy a McDonald’ franchise to have a true business. With a service business, like housecleaning, you can do all the work yourself to start, but still have natural growth path. Just hire a helper when you have enough work, then hire another, and then hire someone to manage the office while you travel the world.
Consider internet-based businesses, but with an eye to how you’ll automate them so you won’t have to work at the business on a daily basis. For example, a friend who sells laminating machines and supplies online eventually got tired of boxing and shipping at home, and hired a fulfillment company to handle all the orders. He no longer needs to be around to run his business.
If you don’t have much capital to invest in a business, see my list of businesses you can start for less than $200, and also my list of ones you can start for $100 or less (some of them are more self-employment situations but can be built into true businesses).
No business is easy nor can any of them be completely ignored, but you can get to the point where the profits keep coming in even when you take a month off. Also, nothing else has more potential to make you truly wealthy.
4. Investment Returns
Investing is usually (but not always) a lot less work than a job, freelance gig or business. You can put in a fair amount of time and effort at first to research and arrange an investment, but then it should keep producing income for you month after month, even as you sleep.
For example, every month we get a check from the buyer of one of our previous homes. We financed the sale on a land contract at 7% interest. We also collect 9.4% on a hard money loan, and average about 5% on our Lending Club investments. None of these have required more than a few minutes work this year.
Here are some other investment options:
- Dividend-Paying Stocks
- Loans to Family and Friends
- Certificates of Deposit
- High-Yield Checking and Savings Accounts
- Savings Bonds
Of course, even with a good rate of return you won’t have much income until you have a lot of money invested. But you can start small and still find reasonable returns. For example, there are stock mutual funds with $100 minimums, and with even less than that you can have a savings account connected to an Insight Debit card, which pays 5% interest.
You may not have enough investment capital to generate meaningful income right now, but (cliche as it is) you can keep adding to it regularly. For example, if you invest using the social lending platform Prosper, you could buy another $25 note (or two or three) every payday, and eventually your portfolio will generate a decent amount of income.
Income-producing real estate may be one of the best investments, but it can require a lot of work, as we discovered when we bought a duplex last year. On the other hand, the type of property and way you invest makes a difference; when we rented out a condo (a previous home) in Florida, we had management handle everything and it still provided a good return.
5. Project Income
There are some ways of making money that don’t fit any of the other categories. They involve activities that have a clear beginning and end. We’ll call them “money making projects.”
For example, I’ve previously written about how I made $2,375 from bank signup bonuses last year. Each “project” netted me between $100 and $500, and had a clear beginning (open the account) and end (close the account once I get the bonus).
I also make thousands of dollars from credit card bonuses and rewards. But not all money-making projects are about playing with money. Here are some examples of other things you can do to bring in some cash without a long-term commitment:
- Have a rummage sale
- Round up scrap metal to sell
- Sell some furniture (see my post on making your furniture into an investment)
- Flip freebies on Craigslist
- Buy a cheap car to sell for a profit
- Be a medical guinea pig
- Make and sell a bunch of walking sticks
- Be a mock juror
- Write a short e-book and put it on Amazon’s Kindle platform to see if it sells
By the way, I’ve done all of the above at some point. I made $150 for a day as a mock juror, I’ve flipped several cars for a profit, and my Kindle books made thousands of dollars. Some of the other projects were more fun than profitable, but they all produced something.
Flipping a house is an example of a big money-making project. We’ve primarily done this with our own homes (you get to keep the profits tax-free if you’ve lived in the home for two years).
These money-making projects are a fun way to supplement your income, but they can be more than that. Once you learn how to do a few of them, you can repeat them as needed. For example, I could make and sell walking sticks again if I wanted to, and I’ll collect more bank and credit card bonuses when I feel like putting in the effort. And as much as I dislike real estate I may someday flip a house for a profit again.
How Much Should Your Diversify Your Income?
So maybe you’re sold on the idea of having multiple sources and different types of income. But how far should you go?
Last year, half of the 22 ways we made money generated $1,000 or more, and no one of them was more than about 30% of our total income. You might call us extreme income diversifiers.
On the other hand, as long as you’re adaptable and save a little, you don’t need dozens of sources of income. If you have income from three categories above, and no more than 75% of your total comes from any one of them, you’ll be more financially secure than most people.
If you have multiple sources of income of different types, tell us about it below. Happy frugaling!