This post is was originally published on Financial Mentor
Multiple Income Streams Is a Wealth Building System Whose Time May Never Come. Uncover the Pitfalls You Must Avoid if Financial Freedom Is Your Goal.
- Learn the right and wrong ways to create multiple streams of income.
- 6 questions to ask yourself to determine if multiple income streams are right for you.
- Discover a simple 3 step process to succeed with multiple streams of income.
Forget everything you’ve read about multiple streams of income.
They haven’t told you the real truth.
The idea is simple enough to understand: diversify your businesses and investments into various, non-correlated sources of residual income, so that you’re never reliant on any one source.
Unfortunately, this simplicity masks problems that the promoters of this wealth building system don’t talk about.
Just to be fair, the clear benefit of multiple income streams is classic risk diversification. Build a portfolio of non-correlated streams of income, and your risk is reduced, making your wealth more stable and secure.
This logic is valid because your international bond portfolio should not be affected by what happens to your apartments in St. Louis, which should not be affected by your dividend stocks, or the income from your business. Each stream of revenue is relatively independent.
The problem rests not in the idea, but in the practical application of the idea.
The key problem is implementation – not theory. Few people ever succeed in building just one stream of income sufficient to achieve financial freedom … let alone several.
It is better to have a permanent income than to be fascinating.
– Oscar Wilde
The idea of diversifying into your personal conglomerate by creating multiple streams of income and successfully competing in all these areas is a task reserved only for a select few. Are you one of them?
Let’s examine this in greater detail…
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Multiple Streams of Income Explained
There are three broad areas in which to create multiple income streams:
- real estate,
- paper assets,
- your own business.
These are the primary asset classes in terms of building wealth and residual income.
You can then subdivide each asset class into specific styles or strategies. For example, real estate can be divided into buy and hold, flipping, foreclosures, single-family, multi-family, and commercial.
Business can include many strategies such as infopreneuring, hard goods, retail, and intellectual property, just to name a few.
According to the multiple income streams philosophy, your objective would be to build residual income streams in several of these subcategories, each of which is sufficient to live on.
Sounds pretty appealing, eh?
Just imagine all these streams of income flowing into your “Lake Prosperity”. No worries if one of the streams dries up, because you have other streams flowing. Your financial future would be secure, allowing you to run off and live the high life.
Gee, I can hardly wait to start! But wait…
The Problem With Creating Multiple Income Streams
Unfortunately, this simple concept with wide appeal is just another example of a dangerous half-truth.
Deeper issues that could cause great financial and personal problems lie hidden beneath the surface, and only appear when applied in the real world.
Below are two realities that fly in the face of multiple streams of income:
- Reality One: We live in a competitive and fast changing world. Business has become highly specialized and niched because knowledge is growing exponentially, requiring specialized skills to employ it properly. Successfully competing in many widely varying fields is contradictory to the specialization and complexity required by our current business climate.
- Reality Two: You have a limited amount of time on this planet to implement your business plans and strategies, while also trying to balance the needs of family, health, spirituality, recreation, relationships, and much more. Do you really want to spend your limited time nursing more than one stream of income? Happiness has more to do with balancing life than making tons of money.
- Result: Financial success results from focused attention directed to a specific outcome, and happiness results from balancing your personal life with your business life. These are key points, and multiple streams of income is contradictory to both of these realities.
Multiple streams of income diffuse your laser focus from a single point of high probability success into a scattered beam of ineffectual light.
It creates multiple demands on your limited time and energy, turning your relationships, family, spirituality, business and investing into a difficult juggling act.
Something will likely suffer, and that something will probably be you.
He that is of the opinion money will do everything may well be suspected of doing everything for money.
– Benjamin Franklin
Should Multiple Streams of Passive Income Be Part of Your Wealth Building System? Answer These Questions…
Building multiple streams of income isn’t the right path for everyone. The skills required and the demands on your time grow with each stream you add.
Below are some questions you should consider before embarking on the multiple streams of income journey:
- Do you understand the principles of time leverage and technology leverage well enough to manage the complexity of multiples streams of income?
- Are you experienced at hiring and managing a staff to run multiple streams of income, so you don’t have to do it yourself?
- Do you already have a history of success in business or investing, proving that you are ready to graduate to a more advanced, complex strategy?
- Do you possess the negotiating skills, business expertise, and street smarts that are required to compete on multiple business and investment fronts simultaneously?
- Do you have a team of experts assembled to advise you on the myriad of legal and financial issues involved in managing multiple streams of income?
- Are multiple streams of income more important to you than enjoying the freedom that results from successfully building one stream of income?
Think about it. Building multiple streams of income is the equivalent of building your own personal conglomerate. Given the poor track record corporations have demonstrated at this task while employing teams of MBAs, what makes you think you will fare better?
Each stream of income requires its own skills and expertise.
Each stream of income has a separate culture and network.
Each stream of income makes demands on the most precious and limited resource in your life – time.
In short, there’s a price to pay for each stream of income, and only you can decide if multiple streams of income are truly worth that price.
The Wrong Way to Create Multiple Streams of Income
There are some people who play the money game because they love it. Investment and business strategy is exciting, and the process of building wealth is a great adventure.
These people are willing to play the multiple streams of income game because it’s the logical next step. It’s a challenge.
If you are so inclined, then beware, because there’s a right and wrong way to go about implementing multiple streams of income into your wealth building system.
The wrong way is to get all fired up and launch a new business, begin stock investing, and buy your first piece of rental real estate all in the same few months.
This is the financial equivalent of running before you ever learn how to walk. The likely outcome is you’ll stumble and fall flat on your face.
It’s not smart business strategy to take on risk recklessly, compete in fields without adequate preparation or knowledge, and spread your resources too thin. This isn’t how you set yourself up to succeed.
I’m not going to tell you it can’t be done, because it can. I’m also not going to set you up for disappointment by leading you to believe it’s reasonably achievable by anyone – because it isn’t.
It’s a tough game to play, and you will pay a price whether you succeed or not.
Every approach to wealth building is highly competitive, and you’ll be going head to head with professionals who live and breathe what they do as their sole source of income.
Any one person could spend a lifetime developing in-depth knowledge of any one of these money making areas because of the complexity involved.
To begin all three simultaneously is asking for trouble and disappointment.
The Right Way to Create Multiple Streams of Residual Income
If you’re going to pursue multiple streams of income, then it’s important to follow a proven, step-by-step process that will maximize your odds of success. Below is that step-by-step process:
Step 1: Master the First Stream of Income
Begin by picking one stream of income that you’re deeply passionate about. For some people it will be real estate, and for others it will be owning your own business.
Your first stream of income should be something so personally exciting that you’d do it whether you ever made a buck at it or not.
Why? Because the first stream of income will be the toughest.
This is where you will develop your Rolodex of support team members, learn fundamental skills applicable to all streams of income, overcome personal obstacles to success, and create enough cash flow to get out of the rat race.
Your first stream of residual income is where you’ll get the most bumps and bruises. By choosing an area you’re passionate about, you’ll increase the odds that you persist long enough to clear all the hurdles and succeed.
Master your first stream of income, and in the process, you’ll develop the necessary foundational skills and abilities that can then be leveraged to develop other streams of income.
Step 2: Systematize the First Stream of Income
Once you’ve mastered the first stream of income, then it’s time to systematize that stream so that it no longer requires your limited time and attention.
Systematizing is done through the application of time leverage (human employees) and technology leverage (digital employees).
Master the skills of systematizing so that your first success runs on auto-pilot without requiring your time, thus earning you residual income and cash flow.
Step 3: Leverage Resources to Create Additional Streams of Residual Income
Once you have systematized the first stream of income to produce residual income without your involvement, then you have the free time and energy to add multiple streams of income.
This is done by intelligently adding additional revenue streams that leverage the skills, knowledge, and network you created in the first stream of income so that you aren’t starting from scratch on each additional stream. This is a key point.
For example, I know of highly successful direct marketers who have leveraged their marketing skills, network, and databases to create residual income by offering other product lines with minimal effort.
Another example is Robert Kiyosaki, bestselling author of “Rich Dad Poor Dad,” who got out of the rat race through real estate. Then he added paper assets and leveraged the financial knowledge he gained from his investment business experience into a successful information publishing business.
Similarly, I got out of the rat race through paper assets before leveraging my investing knowledge into real estate, and then re-leveraging that same skill set into my information publishing business.
Notice the pattern. Each of the above successful examples developed multiple streams of income by learning the base skills in one stream, and leveraging those skills later to create additional streams.
Each successful example learns to walk with one stream before running with multiple streams of residual income.
I challenge you to examine anyone who has succeeded with multiple streams of income, and see if they violated my rules of walking before running. Every “multiple streamer” I have met built their success from one stream they were passionate about.
Only after that initial success with one stream of income did they leverage their resources into multiple streams of income.
In fact, to do it any other way is to throw away one of the primary benefits of multiple streams of income: leverage of existing resources.
This concept is known in the corporate merger world as “operating efficiencies”. It takes less effort to operate each additional stream of income because they’re all built upon the same foundational resources.
When you attempt to create multiple streams of income simultaneously, you’ll create mayhem instead of leverage, because no base resources exist to build upon. It makes no sense. It has no advantage sufficient to justify the problems it creates.
The bottom line is if you’re going to build multiple streams of income, then there is a right and wrong way to go about it. Follow this step-by-step process, and you’ll maximize your odds of success.
Should You Even Bother to Create Multiple Streams Of Income?
The primary benefit to multiple streams of income is the consistency and security of your income coming from non-related sources. But there are other ways to achieve this security without all the complication.
After all, how much more financial security do you need than a laddered bond portfolio that throws off more income than you spend, so that you can reinvest and continue to grow the income offsetting inflation?
No complication or multiple streams of income here, but lots of financial security.
Another alternative is to own ten free and clear, well located rental houses. This is something very achievable for most people. It’s not complicated, and there are no multiple streams of income, but it’s extremely secure. What more do you need?
You could easily skip the whole multiple streams of income thing if your goal is time freedom and personal freedom. What do you gain from all the complication created?
These are questions you must consider as you design your wealth building system, and we walk you through answering them in this course so you can create an action plan to reach your financial freedom goal.
Should you focus your time and resources by really doing one stream right, or should you spread yourself thin by doing multiple streams of income? What’s more important: your health and relationships, or another stream of income?
What do you gain and what do you lose?
Money was never a big motivation for me, except as a way to keep score. The real excitement is playing the game.
– Donald Trump
Creating multiple streams of income is a wealth-building system that has some advantages and disadvantages.
The desirable characteristic of multiple streams of income is it can diversify your passive income into non-correlated streams. When something goes wrong with one stream, your lifestyle and freedom are never at risk.
Also, multiple streams of income allow you to leverage existing resources to create additional revenue — but only when the strategy is implemented properly.
The downside to multiple streams of income is it requires you to juggle all the issues for each stream, which can diffuse your limited resources, create distraction, and lead to confusion. This is the antithesis of success and true wealth.
Similarly, multiple streams of income can divert your attention from deeper sources of happiness such as family, recreation, spirituality and relationships.
My experience after coaching many clients through the process is you’re better off succeeding with one stream of income to start. Only leverage into additional streams after you’re successful with the first.
I would rather coach you to focus on building one stream very well, creating a high probability of success, than to juggle the distraction and complication of managing several streams simultaneously.
Succeed by building one stream of income first, then use the freedom created from that success to create additional streams if that’s what your heart desires.
This path is valid for people who truly love the wealth-building game and desire the creative challenge that comes with building multiple streams of income purely for fun.
Alternatively, you could just decide to skip the whole multiple streams of income idea and learn to enjoy the freedom created by your one successful stream.
Happiness and true wealth are the real goals, and multiple streams of income may just serve as a useless distraction from the reasons you sought financial freedom in the first place.