The more income streams you have the better, right?
This is not necessarily true.
How many income streams should you have then? The answer depends on your goals, available time, types of income streams, available capital, taxes, demonstrated success, income reliability, and desired lifestyle.
In this post I’ll share what I’ve learned in each of these areas after creating ongoing income streams from stocks, real estate and small business (in that order) over the past 15 years along with my husband, Larry, and investing for almost 40 years.
We planned on creating a few income streams and have ended up with 13+! Would we do this all again? Keep reading to find out.
How Your Goals How Many Income Streams You Should Have
Is your goal to build wealth or to increase income at this point in your life?
Based on traditional financial planning income streams are usually created to generate income when you’re not employed.
On the other hand, capital gains are created to build wealth.
If your goal is to cover lifestyle expenses plus increasing savings, you’ll want to have enough income streams to do that.
This could mean increasing existing income streams or starting new income streams depending on your situation.
Or you may find that you already have enough income streams to cover both your lifestyle expenses and any amount you want to add to your savings.
In this case, you probably have enough income streams. In this situation, would you want more income streams? You might.
You can read my post on retirement income planning where I have a process to see if your income streams cover expenses.
Click here to grab my eBook with our 9 favorite income streams that also build wealth.
Income Streams to Build Wealth
While it’s not the norm in traditional financial planning, creating extra income streams can be an excellent way to increase savings.
While taxes may be owed on the additional income, depending on the source, not having more income streams to avoid taxes is putting the cart before the horse.
If your goal is to build wealth in addition to covering lifestyle expenses, and it appears you are not otherwise saving money or building wealth, then it makes a lot of sense to create new income streams to have more money to save.
But if your goal is to simply cover lifestyle expenses from multiple income streams and you’re achieving that, you may not want to create more income streams unless it’s something you simply enjoy.
Click here to read my related post Income Producing Assets That Shine where I write about more different kinds of income streams.
Like us, you may have a goal to live off income streams instead of withdrawing your investment capital to live in retirement. I explain this more in my post How to Live Off Investments here.
How Time Affects Income Streams
There are several time factors to consider that will guide you to how many income streams you should have.
Available Time to Focus on Income Streams
The amount of time you have available to spend on creating and managing income streams is a major factor to consider.
If you work full time and have a family, for example, you probably want to spend little if any time on income streams.
How Much Time Your Income Streams Require
There are passive income streams that require very little time once established. In deciding how many income streams to have, you can choose to have more income streams if they are passive or mostly passive.
Passive Income Streams
Here are examples of passive income streams after the initial research or creation.
Residual income from books and licensed products are examples of passive income streams that require little time after the initial product creation.
Stock dividends and bond interest require no time beyond choosing and monitoring the investments. (Read my post Is Dividend Investing Worth It? for more about this.)
Income streams from oil partnerships and REITs are also very passive.
Investing in small businesses as a partner can be mostly passive, too, but this is not always the case if things don’t go as initially planned.
And now income streams can be had from online small business lending and real estate loans. (We have not done either of these as of this writing.)
My post Is Passive Income Real? has more information on this.
Mostly Passive Income Streams
Other income streams like real estate rentals can require very little to a moderate amount of time depending on your involvement vs hiring a property manager.
Covered call strategies can take only a few hours a month, if that.
And online businesses that get income from advertising require very little time to manage.
Product stores can also take little time to manage once they are set up as I have experienced with my branded products Amazon store. Click here to read my post Is It Too Late to Start an Online Business? where I explain this more.
Some income streams that can capitalize on leverage require a moderate amount of time to run and manage. Examples include membership websites and group coaching programs.
Serviced based income that can be outsourced requires a moderate amount of time until or unless the funds are available to hire someone to run the entire operation.
Time Consuming Income Streams
Other income streams require a lot of time. For example, one on one coaching or consulting income streams take a lot of time since they trade time for money.
From the list above, what kind of income streams do you want to create and how much time do they take? Considering this will influence how many and what type of income streams you create.
Check out my video with 5 tips setting up multiple streams of income but keep reading after you watch it for 6 more important factors in deciding how many income streams to have:)
Different Types of Income Streams
The types of income streams you have will affect how many income streams you should have. For example, if you have one or two income streams that demand a lot of your time, or capital, for example, you may not want more.
Or you may be able to shift capital or time consuming income streams to a more leveraged income stream that requires less time freeing you to add additional income streams.
Capital to Use for Income Streams
Some income streams require a lot of capital, such as dividends and bond interest.
On the other hand, income streams from coaching require zero capital.
And capital required for real estate rentals is moderate since the purchase can be leveraged but the stakes are high should the investment not work out.
The amount of capital, then, will influence how many income streams you should have since you don’t want to have too much of your capital tied up in income generation, especially if your goal at the time is wealth building.
Having addressed this, it’s important to mention that many income producing assets can also be sold for capital gains. In other words, they generate income and build wealth.
Examples of this are real estate rental properties that increase in value and online businesses, especially those with passive income.
Income Streams Affect Taxes
Different income streams are taxed differently. Many income producing assets even have tax benefits, such as small business and real estate rentals.
But an additional income stream or two can also cause you to be in a higher tax bracket than you were without it.
It’s important to understand how any income stream you are considering will affect your taxes so you can plan. Do some research or check with your CPA.
Here is my video with 5 good reasons to set up diversified income streams.
Income Streams That Work
After you get started with one or more income streams, you’ll see which income streams work best:
- Produce the most income
- Have the most upside potential
- Have the most potential to produce a capital gain eventually
- You enjoy (We get done that which we enjoy)
- Tap into your highest skills
This will guide you to how many income streams you should create and where. You’ll probably want to create more in the area that meets the 5 points above which maintaining some diversification to lower risk.
And you may have one type of income stream that you really enjoy which generates significantly more income than the others.
Like us, after you get started you may see that your lifestyle allows you to focus on more or less passive income streams where you are in your life now, with a plan to scale into more passive income later when you wish to work less.
Income Stream Reliability
Some income streams are much more predictable than others. You can count on them to pay the bills and that’s a good thing.
If you don’t make enough money from a job or other income sources to pay your monthly bills, it’s important to have some reliable income stream to do that. Otherwise, it’s hard to plan, and it’s hard to feel financially secure unless you have a very high net worth to fall back on.
Note that the more reliable an income stream is, the less upside potential it usually has. For example, dividends are reliable but limited, while small business income streams are often less reliable.
Desired Lifestyle Determines How Many Income Streams to Have
The purpose of having wealth is to live how you want. The number of income streams you have will affects the quality of your life from both an expense and a time standpoint.
Time to Run Multiple Income Streams
In deciding how many income streams you should have first decide how you want your life to be.
Do you want to have lots of free time, or are you happy to work at least part time? This will drive how many income streams you’ll want.
Click here to read my post How to Get More Income from Investments with 44 passive income ideas.
Are you happy to live on a tight budget or do you like luxury? The less money you spend the less income you’ll need to cover your expenses, and the less wealth you’ll need to retire.
Use your current lifestyle as a guide here.
It sounds like a good problem to have, but trying to create and manage too many income streams can lead to overwhelm. This is especially true for unrelated income streams, like dividend income vs website advertising, for example. They require completely different knowledge bases.
On the other hand, the commonality among internet based income streams makes several online income streams easier to manage. They require similar or the same knowledge base and they can be outsourced to the same team.
And covered calls can easily be added to dividend paying stocks to double or triple dividend income.
We bought rental properties before we began online businesses. This was good since our rental properties require little time.
On the other hand, one of the online business models we chose has been time consuming, but this has been reduced over time as efficiency improved and the business gained traction.
Use Diversified Income Streams to Lower Risk
Sometimes income streams stop working. For this reason, you should have as many income streams as you need to be able to pay your bills without stress if one income stream ends due to factors beyond your control.
Some income streams tend to suffer at the same time. These types of income streams are correlated. For example, when economic growth slows, companies make less money so stock dividends are more likely to get cut.
And stock bear markets tend to happen around recessions. During recessions people lose jobs. This can lead to a loss in consulting income or to a loss in tenants for rental properties.
But loss of tenants is offset by the fact that many people delay buying a home during recessions so more people rent.
On the other hand, online businesses that do well regardless of the economy can continue to be strong when other income streams are weak.
It’s important to look at the income streams you are considering from a strategic point of view about which income streams are correlated. This will guide you on how many income streams you should have since you’ll want one or more that always flow.
Summary for How Many Income Streams Should You Have
These six factors influence the number of income streams you should have. As usual here at Retire Certain, there is rarely a one size fits all rule for when it comes to your money.
How could there be?
Truly embracing and reaching financial independence is a personal journey that requires introspection.
Begin by evaluating your own financial goals and situation. This will guide you to how many income streams you should create.
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Disclaimer: Nothing in this post is meant to be construed as personal financial advice. Do your own research before investing in anything, ever. Lead your wealth.