Did you know that there are many ways that you can increase your income? In this article, we will look at the difference between active and passive income streams as well as the reason you should diversify your income sooner rather than later.
Active income streams
An active income stream is a regular form of compensation an individual receives from a range of sources. For example, salaries, wages and commissions are all forms of active income streams. Note, for something to be an active income stream, you would have had to have done something to receive the compensation, in other words, a trade of time for payment.
Passive income streams
A passive income stream is gained from something an individual does not participate in and requires very little effort to sustain. The easiest way to explain this is to use the example of a landlord. If someone rents out property, they will receive a monthly rental amount from their tenant. This is a passive income stream. It’s worth noting here that there will often be an amount of effort applied earlier on to develop this type of income stream. Other examples of passive income include interest from banking accounts, any form of royalties, earnings from internet advertising, and pensions.
Passive Income Online
In the age of the world wide web, it’s now easier than it has ever been to setup a passive income generating business. Being purely online means there are far fewer overheads. It’s relatively easy to setup a website online which can act as the front for your business. There will of course be initial groundwork involved, but once set up, the time needed to keep the business running can be decreased to potentially only a few hours a week.
Some of the business models often used to generate passive income online are eCommerce, online courses, eBooks and product review/comparison websites. By utilising methods such as drop shipping and outsourcing, the running costs (both time and money) for these types of businesses can be kept to a minimum.
Benefits of Diversifying
Why is it necessary to diversify your income streams?
First, it offers a form of security. Although you may have a well-paying job, job security is not what it used to be. Relying on one source of income to support you is not ideal, as losing your job is something you should always consider as a possible scenario. If this does happen and you only have one source of income, how will you manage to survive, let alone pay your bills? With another source of income to fall back on, you could make ends meet until you find another job.
Second, it increases your income. It is a well-known fact that most millionaires don’t just have their fingers in one pie. They have multiple streams of income. This increased income can be used in a number of ways including paying off your mortgage quicker, paying off debt, or setting up an emergency fund if you don’t have one.
Third, it provides you with more freedom! We all need a little more time for ourselves, right? By having multiple streams of income, with some of them being passive, you certainly will have more time available for the things you want to do. This could be spending time with your family, taking up a hobby you have always wanted to participate in, or travelling. The possibilities are endless.
Without a doubt, the advantages of a diversified income are numerous. Start to think about ways that you could add additional income streams, even if they start small. You can gradually grow a few streams on the side and reap the benefits