Editor’s Note: This story originally appeared on SmartAsset.com.
Almost half of all Americans depend on outside jobs to get by. This is largely hidden in the data from the Bureau of Labor Statistics and the US Census Bureau. According to census data, 7.8% of Americans have more than one job. Having multiple streams of income is quickly becoming how people save for retirement, get rid of debt, or just build up some pocket money. This Etsy shop might not pay all of the bills, but done right it could certainly help a six-month emergency fund last much longer.
The number of people with multiple income streams has increased over the past 20 years. This is only a fraction of the real total, however, largely because both the Census Bureau and the Bureau of Labor Statistics use a relatively antiquated definition of formal employment to define an individual’s secondary employment. Half of all workers under 40 do gig work in addition to their full-time jobs, and most of them say they need the money either for bills or to save.
Between formal and self-employed or gig work, only about 4 in 10 US workers have some sort of second job. Here are a few rules of thumb for creating multiple streams of income. Consider working with a financial advisor to best grow your income.
Not all income means employment
When we talk about multiple streams of income, a second job is the natural starting point. As mentioned earlier, for relatively few Americans this means getting a part-time job. This is particularly popular with younger people who can spend hours in the service or retail sector. For many, many more people today, part-time work means app-based gig employment. They drive for ridesharing, delivering meals and groceries, or picking up hours on odd jobs.
Do not think that this work is limited to sideline activities. Millions of Americans who cannot find stable employment depend on poorly paid, unstable work for their primary income. However, if you’re looking for a paycheck on the side, getting into work is never a bad idea.
On the other hand, it is not absolutely necessary either. In fact, most wealthy households have broad and varied sources of income without completing an application to work at Macy’s or a beach kiosk.
Aside from work, the top four places to look for extra money are:
- Passive income – This means that you receive income from external sources without any further action on your part. For example, many authors rely on the royalties generated by their published books. You don’t do anything, but the money comes in.
- Invested Income – This is money that you make with your investment portfolio. This can refer to dividends, capital gains, and even the profits from a company you may have invested in. In general, you make money by managing your investments.
- Own income – Not quite the same as passive income. Personal income is the money you earn from your property or assets. Essentially, can you buy something that other people want to use? The best-known example of this are rental apartments. A family stateroom isn’t entirely passive, you still have to turn it around and prepare it for your guests, but it’s not an occupation either.
- Business income – In relation to employment, but not entirely. Related to contract work, but not entirely. Business income is the money you make from running your own business and selling products and services to interested customers.
Beware of upfront costs
To a certain extent, you have to spend money to make money. After all, you can’t build a strong portfolio without buying stocks, and if you want a good job you will likely need to invest in at least one suit or semi-formal outfit. Be careful though. Many part-time jobs can require or at least encourage you to invest some cash upfront to get started. This is especially popular with multi-level marketing firms. Generally speaking, this is encouraging. You want to make more money faster, right? Well, the best tools can only help in the long run, right?
Not always. Before you buy a new car, fancy camera, or knife set, think carefully about how long it will take to get your money back. Even a successful sideline can take time, and you don’t want to lock yourself up in something only to find that it doesn’t go well in the long run. Don’t necessarily leave an opportunity behind because of the upfront cost, but ask yourself if you really need to spend that money right now.
Look at investments
Investing can be difficult.
The value of investments as a source of additional income depends entirely on your circumstances. How much money do you have to earn specifically and in what period of time? That often gets investors into trouble.
If you think long term, building and diversifying an investment portfolio can be the best way to create a secondary stream of income. You can look for income-oriented assets like bonds and stocks that are known to pay dividends. You can build an active portfolio that grows steadily through capital gains. The options are strong and endless. Managed carefully with the future in mind, this can be a great way to complement your financial goals.
And don’t stop at stocks and bonds either. Investing can mean a lot more than traditional stocks. Do you know someone who wants to start a business? Ask how much money they need. Have you ever thought about REITs, a way of entering the real estate market with lower stakes? How about peer-to-peer loan sites that often generate great returns? Investments are a wide range of opportunities.
However, when you need money for everyday expenses, investing can become very dangerous. Many investors in this position are looking for quick wins. They put their money in penny stocks, cryptocurrency and day trading derivatives, and most of the time they are worse off than they were when they started.
Here is your rule of thumb: invest. Invest. Build a good, diversified portfolio and use investments as a fantastic source of income for a period measured in years. However, don’t rely on investments to pay your bills or other short-term commitments. If you need reliable money fast, find yourself a second job or gig job.
Look at the property carefully
Real estate could be the most lucrative source of additional income. If you are successful, you can make thousands of dollars with little or no effort simply by owning a valuable property and renting it out. In fact, in strong rental markets, you don’t even have to actively manage the property yourself. There are many companies that will take care of the rental, management and maintenance for you (at an additional cost, of course).
The options for investing in real estate are also very different. At the lowest level, a lot of people make money renting an extra bedroom apartment that they reserve for Airbnb. (Warning: this is often illegal and can backfire.) Others buy vacation homes to rent out the property for much of the year, while the more ambitious may buy apartments or even small apartment buildings.
This can be extremely profitable. It’s pretty risky too.
Real estate often has the highest overhead cost of any asset on the market. Not only is the property itself expensive, but you also have to pay for a myriad of legal, maintenance, insurance, and related costs that many first-time investors don’t expect. If this investment wins, it can win big. If it fails, it can fail even bigger. As with all high risk investments, proceed cautiously and only with money you can afford to lose.
Look at a business with enthusiasm
The internet has made it incredibly easy to start your own business. Far from the days of raising the cash for a storefront and shelves full of products, today you can start a business for no more than domain name registration fees – if at all.
In fact, starting your own company often doesn’t even look like starting a business anymore. For example, almost all freelancers run a small business, even if they have never formally registered. Anyone who sells, blogs, or runs a YouTube channel on Etsy runs their own business. It can be a hugely satisfying way to make some extra cash on the side, and – who knows? – When things get going, the business can even become your full-time job.
Start with your passion. What is your favorite thing to do What are you great at? Can you teach, sew, draw, write or dance? And how can you convey this passion to others?
Running a business, any business, takes a lot of time and dedication. It can take you a while to make real money, if at all. So you still have to enjoy your work even if it has hardly made any profit in the past year. Many would-be bloggers encounter this problem. They start almost immediately with the intent of making a living from their laptops only to find out how long it takes to turn a collection of fonts into a regular living.
Plus, your passion will help you stand out from others in a very crowded market. Everyone has to answer the question: “Why my product? Why my ministry? ”The skill that comes from real commitment helps answer that question.
The bottom line
Creating multiple streams of income can be a great way to improve your personal finances. Whether you’re trying to increase your savings or achieve a goal, this is a step many of the most financially successful Americans are taking.
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