Monday, 23 November 2015

How to create multiple income streams and live better

Rajiv Jamkhedkar
Serengeti Ventures

Have you ever wondered what it is about people who have security and peace about their money and wealth?
I know of a big factory-owner, worth over Rs 100 crores, yet does not have peace of mind about his money. The reason - his entire life is built around his factory, his business. When his business does well, he is happy. If bad times reduce his cash-profits, he becomes insecure.
Rich people know the secret to wealth and peace of mind - and that is - having many cash-streams coming into their lives (and accounts!) instead of just one. One cash flow - say a salary or profit from a business - will not provide security in all times. On the other hand, multiple cash-flows provides stability and security. In case one cash-flow vanishes or reduces, the other one gives you comfort and sustenance.
At this point you may ask: “I am an ordinary middle-class worker. How can I do multiple jobs to create multiple cash-flows?” Let us examine the types of second and third income that you can create:
1. Spouse income - If the husband/wife is also earning, it acts as a buffer for both of them. In today’s economic environment, job security is a thing of the past. Having the spouse earn is a big positive. This second income can be used towards the burden of household expenses, towards investing for the future, and as a back-up to the first income etc. Even if the spouse wants to work from home, today there are options - freelance work, part-time work, flexi-hour work, tuitions, cooking/catering, designing, etc can all be done from home. And money is good too.
An important thing to remember is: Even if spouse’s income is 20-30% of the main earner in the family it is great because if even you lived-off one income and invested the other income, financially you can be very well off in the long-term. Hence, everyone should consider this option.
2.Hobby income - Almost everyone has a hobby or an interest - art, cooking, fabrics, designing, books, photography, interest in History or coaching and training. The list is endless. You can use your hobby to generate income and cash-flow. I know many individuals who do this. There is a highly educated person I know who teaches on week-ends for joy and money. One man paints and sells paintings to sustain his art hobby. Another does historical tours. Indulge in your hobby and make it pay. Who knows, it may become your second career!
3. Rent - Being a landlord is fabulous. You get rent for the rest of your life on the asset that you have created. This type of income also can grow if your property is good, well maintained. The growing income is a hedge against inflation. If you can earn rent to pay for your living expenses every month, you can be very close to achieving financial freedom!
4. Passive income from your portfolio - Passive income is income you earn without working. This is the best form of income or cash-flows because you earn it even when you are sleeping. Examples are - Interest earned from fixed deposits, dividend from stocks, gains from shares etc.
The more assets you buy, the more your passive income can grow. Again, the endeavour of every person should be that at least 20-30% of your total income should be from this type of income. This income is a result of a habit of investing. Keep investing and your cash-flows will grow with which you can invest more!
5. Intellectual property (IP) - Writing books, inventing a new machine or process, writing or composing a song are examples of this type of income. This is also a superlative form of income because you create IP only once (with your mind) and reap cash-flow for the rest of your life.
I have given examples of how one person can create up to fivesources of cash-flows. Let me give you an admirable example:
Mr Raman, age 32, works for a bank as a senior manager. He earns Rs 50,000 per month take-home salary. His wife works as a school teacher earning Rs 15,000 per month. Raman had, earlier in his career, sold life insurance policies as an agent earning roughly Rs 50,000 per annum (Rs 4200 per month) as renewal commission every year from those policies sold. Raman has a flat of his own plus a small investment property in neighbouring suburb giving him Rs 15,000 p.m. rent. Raman has a decent small savings portfolio giving him an interest of Rs 5,000 per month. Raman believes he will increase his savings income from Rs 5000 to 15,000 in 5 years time as he plans to save all of his annual bonus (Rs 1.5 lacs per annum) every year.
You see the pattern here? Raman has created 5 cash-flows around himself that gives him wealth and peace of mind. He will continue to grow these all his life.
Raman is not a fictional character. He is a real person (identity not disclosed for privacy) with average talents and not great investing acumen or knowledge but he has managed to be rich, comfortable and risk-resistant. I consider him a great role model and cite his example to many people.
Icing on the cake is Raman’s family lives on Rs 40,000 per month happily. This creates a surplus of around Rs 50,000 every month adding to his wealth. What a great situation to be! He is saving regularly in a pension policy that will pay him a pension of Rs 30,000 p.m. from age 58 when he retires. Add that as one more cash-flow.
Some notable points before you begin to create multiple cash-flows:
- First secure one cash-flow before starting on another;
- Go for small but sustainable cash-flows rather than big gains;
- Regular cash-flows over long-term are preferable over big gains one time. People tend to spend big gains.

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