Question – when going into battle, would you rather have one soldier on your side or a thousand? Hopefully you didn’t answer one. Income streams are your soldiers in the battle against the cost of living. Wouldn’t it be better to have several, so that if one soldier goes down, the others will keep your agenda moving forward?
Look, we all buy auto insurance, health insurance, life insurance, disability insurance, etc. We buy those in order to transfer the risk of a large payment away from ourselves and onto a third party – the insurer. Whether we like it or not, the possibility of a loss of income is a substantial risk in all of our financial lives, specifically in today’s economic environment, and it makes good sense to be ensured for it. While most people chose to spend money on a loss of income insurance policy, which may be the right thing to do for them, I prefer the multiple income strategy. I believe that ten sources of income, each bringing in $500 and totaling $5,000 per month, is better than one source of income bringing in the entire $5,000 for two reasons: income stability and income growth potential.
Income Stability
The biggest concern I have with a single income stream is that it is extremely exposed to what I call the “shit happens” factors in life. Think of it as putting all your eggs in one basket – better not drop the basket. Loss of that one and only source of income even temporarily has the potential to dramatically impact your life in a negative way. What happens if you get sick and are unable to work? We all know someone this has happened to. Or, what if the economy goes south and you get laid-off? This has happened to one out of seven working Americans in the past few years. I could go on, but I won’t.
Let me paint you a picture instead. Suppose you are a painter who works for a corporation whose business it is to paint large murals on buildings. Suppose that the company pays you $40,000 per year to travel from town to town painting these murals. Now suppose the economy stumbles and the company’s business is cut in half. Chances are good that you will be pink-slipped, right?
Now imagine that you are a free-lance artist doing the same exact thing – painting murals. But, instead of a $40,000 salary you get paid $1,000 per mural, and you crank out about forty of them every year. Now let’s say the economy gets soggy and you are only able to contract 25 murals in stead of 40. Obviously you are not having a good year and your income is down to $25,000, but isn’t this better than being laid-off with no income whatsoever?
In this example, multiple revenue streams definitely offer some amount of safety relative to a single salary. Ultimately, though, they are not passive income streams. This means that if you can’t work, you can’t earn. Therefore you are still substantially exposed to many of the “shit” factors in life like an illness.
The solution, of course is to generate your revenue through passive income, without your material participation. For example, let’s say you own this mural painting business, but you don’t actually do any of the painting yourself. Instead, you hire employees or independent contractors to do the work. Now, even if you were to take ill, the work would still get done and you would get paid as the owner of a business.
To bring this into the realm of real estate, let’s say you own 25 houses and each one realizes monthly cash flow of about $200, for a combine monthly cash flow of $5,000. Do you see that even if you were to become unable to work, the income from the houses would not stop? This is the power of Multiple Passive Revenue Streams.
Income growth potential
As I have shown, multiple income stream strategy is wise relative to income protection and stability. But it is also an excellent tool for income expansion. Unlike a single revenue stream, which is most often a result of employment and presents few opportunities for expansion, multiple revenue stream strategy requires that systems be put in place to manage and oversee those streams. In this case, you become the manager, whose main job is to oversee those systems. The fantastic secret is that while a significant amount of knowledge and skill are required to establish and manage systems, it takes far less physical effort and time-commitment on a daily basis than you’d think – you are working smarter, not harder! What will you do with the extra time? You will look for and acquire more assets which will add to your passive revenue streams. These additional streams will not only help to further spread risk, as previously discussed, but each additional revenue stream will effectively give a raise. Only you won’t have to beg for it…
The main philosophy here is that if you choose to concentrate on developing the knowledge base which will allow you to establish and manage multiple passive revenue streams, you will gain financial security and unlimited income potential.
Work smarter, not harder!
© Copyright 2012 Ben Leybovich and Just Ask Ben Why. All Rights Reserved.