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Don't rely on 'one income stream,' says self-made millionaire: Here's how to build wealth

"You never want to be reliant on one income stream."

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More than half of Americans are living paycheck to paycheck, according to a new PYMNTS.com survey of 30,000 adults. Developing additional streams of income can help you feel more financially secure rather than relying on a single paycheck, experts say, and it can put you in a position to grow your wealth.

Diversifying income streams is a strategy the wealthiest already employ: Almost two-thirds of self-made millionaires, 65%, have at least three sources of income, according to "Rich Habits" author Tom Corley, who studied the habits of 233 millionaires, including 177 self-made. About 3 in 10 had five or more streams of income.

"It's important to diversify risk in all areas of your life," says self-made millionaire and FIRE adherent Grant Sabatier, the author of "Financial Freedom." "You never want to put all of your money in one basket."

To be safe, "you never want to be reliant on one income stream, or your full-time employer, or even one market, because the one constant in life is change and things are changing so rapidly," he says. "The best way to insulate yourself against that change is by having multiple streams of income."

Here's how to use additional income streams to achieve your financial goals. 

Four kinds of income streams to explore

Adding another source of income doesn't mean "you have to think of yourself as a CEO," says Kevin Mahoney, a certified financial planner and the founder of Illumint in Washington, D.C. "I think that in and of itself is daunting, and a nonstarter for a lot of people who just don't think of themselves as entrepreneurs. But I don't think it has to be that complicated."

There are two broad categories of income: active and passive. With active income, you're earning money in exchange for performing a service. Passive income requires little-to-no-effort to make. Income stream possibilities include:

1. Salaries and wages. You're already diversifying income streams if both you and your spouse have full- or part-time jobs pulling in a regular paycheck. About 7.8% of employed individuals hold multiple jobs, based on the most recent Census data from 2018.

2. Side hustles and businesses. There are endless opportunities here depending on the time and skills you're working with, from answering questions online to delivering groceries. You could pick one, or more: Financial Panther founder Kevin Ha has picked up more than a dozen side hustles that collectively bring in $1,000 to $2,000 per month. (Take Grow's quiz to help find the right side hustle for you.)

3. Investments and savings. Putting your money to work in the stock market is a tried and true way to grow long-term wealth. Income streams from your portfolio might include dividends, interest from sources such as savings accounts and bonds, and capital gains. Another investment that can act as a source of income is real estate. And that doesn't always mean you have to buy an entire property to rent out, says Ha: "I used to rent out a room in my house on Airbnb because I had a spare bedroom."

4. Royalties. If you write a book or teach an online class, for example, you could pull in royalty income every time someone purchases that product. "Every time my book sells, you know, I get $1 to $2," points out Sabatier. "That's something I only had to create one time and now it continues to make me money."

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How creating multiple income streams can set you up for success

The main benefit of having more than one source of income: added financial security. "Having multiple income streams means that even when things are volatile … you have a backup," says Mahoney. Meaning even if you experience job loss, like many Americans did during the Covid-19 pandemic, you may be able to keep up with your bills. 

Various streams have helped Sabatier build skills that lead to new opportunities. "I always like to say skills are the future currency," says Sabatier, who is also the founder of websites Millennial Money and BankBonus.com. "Making money in ways that you haven't made money before, it teaches you a lot." Those new skills could also be valuable in helping you stay employed, or find new work more quickly.

The best way to insulate yourself against that change is by having multiple streams of income.
Grant Sabatier
Author, 'Financial Freedom'

You can also use your extra income to make progress on your financial goals. The best way to use your additional income really depends on your financial situation, but Mahoney suggests tackling the basics first, such as having an emergency savings account worth at least one month of expenses.

Paying off high-interest debt, including credit cards, is another smart way to use extra income. Ha was able to use his additional income streams to pay off $87,000 worth of student loan debt in less than three years. 

"The number one thing that having multiple income streams helped me do was it gave me more money to invest," says Sabatier. "I wanted to supercharge that money, and over 80% of my net worth today has come from investment gains." 

Your extra income stream doesn't have to be substantial to have a positive effect on your finances. Even an extra $5 or $10 a day can help set you up for the future, says Ha. "Consistent, small amounts over time do add up. So even if you're making just a little extra money over time, that will add up, especially with the power of investing and compound interest."

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