There are three popular ways of generating multiple sources of income. This usually includes passive income, active income and portfolio income. Active income is the monthly earnings from your job, passive income is from hobbies or rents, and portfolio income is from investments.
Why is it Important to Have Multiple Streams of Income?
11 Benefits of Having Multiple Sources of Income
There are myriad benefits that you can reap by diversifying your sources of income. These include:
- Assures Financial Support: With a surge in the sources of income, you can have a sense of financial support. Thus, even when any of these sources of cash inflow evaporates, you can stay assured of getting at least some money. You can use this to pay for your basic needs while trying to replenish the vanished source of income.
- Prevents Need for Monetary Help: Since there is a notable amplification of earnings, you can always have sufficient money to pay for your needs. Thus, you will not have to approach family members, friends, or even lenders for monetary support. However, you should note that it becomes imperative to calculate your expenses to keep from overspending.
- Provides Protection Against Inflation: Investments like real estate, gold, and so on can act as a hedge during inflation. So, you can invest in these financial instruments such that your revenue from them stays inflation-proof. However, you should note that you will need a sumptuous amount of money to invest in these assets.
- Helps to pay EMIs on time: An additional cash inflow provides sufficient money to pay your monthly instalments without compromising your current lifestyle. Thus, you can repay your loan on time so that there is a notable improvement in your credit score. Also, you can make timely payments of insurance premiums so that they do not expire.
- Provides Financial Independence: Extra income can help you achieve a sense of financial independence. Thus, you need not depend on anyone to fulfil your wants and needs. This gives you both recognition and confidence to make lifestyle changes. Also, this makes you well aware of financial management for wealth creation.
- Offers Opportunity to Work Less: Are you worried about working extra to increase your income? One of the main benefits of having multiple sources of income is that you will not have to work rigorously to earn more. This will help you to take time out from your daily life for your hobbies or spend time with your loved ones.
- Help to Acheive Financial Goals: Extra cash inflow allows you to reach your monetary goals at the earliest. So, you can take your kids to Disney Land, watch the Northern lights with your loved ones, buy your dream home, send your kid to the best college, or even plan for a grand destination wedding without worrying much about finances.
- Helps Achieving Dream Life: With increased income, you can easily afford the lifestyle you have dreamt of. You can purchase the home theatre, plan weekend trips every week with your family, give a new look to your house, buy your favourite gadgets and so on. Also, you will not need to go for credit to afford them.
- Supplies Money During Financial Crisis: Financial crises can come unplanned at any time in your life. This can be due to a recession, job switch or even sudden and enormous medical expenses. However, if you have additional sources from where you can quickly generate revenue, it becomes easier to deal with unexpected costs.
- Provides Early Retirement Opportunities: Many people wish to retire early from their job but are unable to do so due to their responsibilities and the number of dependents. However, if there are multiple sources of income, they can easily fulfil their responsibilities even when their monthly income flow vanishes. Also, they will not have to use up all their saving for this purpose.
- Helps to buid wealth faster: Increased income equals more savings. Also, more savings can lead to more investment and, eventually, revenue. Thus, you will not have to wait longer to fulfil your or the family members' dreams.
There are numerous ways of generating an extra source of income. Once you find the right ones, you can reap the benefits of multiple income streams. For this, it becomes necessary to gather sufficient knowledge about how you plan to use it. Also, you can seek guidance from an expert to find the fitting streams.
FAQs on Why Multiple Streams of Income Are Important
Numerous sources of income provide you with the peace of mind that you can have sufficient money to meet immediate expenses. Also, if any of your income streams dry up, you can depend on the others while replenishing the same. Moreover, you will not have to go for credits in case of immediate fund needs.
The only problem associated with generating multiple sources of income is efficiently managing them. It becomes important to manage your passive, active, and portfolio income equally well. Also, you should track your earnings from each and look for ways to diversify them.
Several income streams can supply you with money when you need cash. This includes emergency funds, life insurance and mutual funds. You can build a goal-oriented emergency fund and keep it in a savings account for returns. Life insurance also gives your beneficiaries money in case of your untimely demise. Furthermore, you can withdraw money from mutual funds as and when required.
Some of the multiple sources of income include earned income, capital gains, interest income, dividend income, rental income, business income, and royalty income. You can select any number of income streams as per your financial goals and the duration within which you will have to achieve them.
Other Important Guides About Wealth Management
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