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A pair of dog walkersNearly half of all Americans depend on secondary work to get by. This is largely hidden from BLS and Census bureau data. According to the Census, 7.8% of Americans work more than one job. Having multiple streams of income is rapidly becoming how people save for retirement, get out of debt or just build up some spending money. That Etsy store might not pay all the bills, but done right it could certainly help a six-month emergency fund stretch a lot longer. Here are a few rules of thumb on creating multiple streams of income. Consider working with a financial advisor on how best to augment your income.

The number of people with multiple streams of income has been growing over the past 20 years. However, it is a fraction of the real total, largely because both the Census and the Bureau of Labor Statistics use a relatively antiquated definition of formal employment to define someone’s second job. Half of all workers 40 and under do gig work in addition to their full-time jobs, and most of them report needing the money for either bills or to establish savings.

Between formal and self-employment or gig work, just about four in every 10 U.S. workers has a second job of some sort.

Not All Income Means Employment

When we talk about multiple streams of income, a second job is the natural place to start. As we note above, for a relatively few Americans this means taking a part-time job. This is particularly popular for younger people, who may pick up hours in the service or retail sectors on the side. For many, many more people, side work today means app-based gig employment. They drive for rideshare services, deliver meals and groceries or pick up hours on odd job sites.

Don’t believe that this work is limited to side hustles. Millions of Americans who can’t find more stable employment rely on low-paying, unstable work for their primary income. However, if you are looking for a paycheck on the side, picking up work is never a bad idea.

On the other hand, it also isn’t strictly necessary. In fact, most wealthy households hold wide and diverse sources of income without filling out an application to work at Macy’s or a beach-themed mall kiosk.

Beyond work, the four major places to look for income are:

  • Passive Income – This means you are earning income from external sources without any further involvement on your part. For example, many writers rely on the royalties generated by their published books. They do nothing, but the money comes in.
  • Invested Income – This is money that you make from your investment portfolio. This can refer to dividends, capital gains, even the profits from a business you may have invested in. In general, you make money by managing your investments.
  • Owned Income – Not quite the same as passive income, owned income is the money you make off of your property or assets. Essentially, can you buy something that other people will want to use? Perhaps the most common example of this is rental property. A family cabin isn’t entirely passive, you still need to turn it over and prepare for your guests, but it isn’t employment either.
  • Business Income – Related to employment, but not quite. Related to contract work, but not quite. Business income is the money you make by running your own business, selling products and services to interested customers.

Beware of Upfront Costs

Uber driver

To a certain degree, you have to spend money to make money. You can’t build a strong portfolio without buying securities, after all, and if you want a good job you’ll probably have to invest in at least one suit or semiformal outfit. Be careful, though. Many side jobs can demand, or at least encourage, you to put up quite a bit of money up front in order to get started. This is particularly popular with multilevel marketing firms. Generally, this is couched in encouraging terms. You want to make more money faster, right? Well having the best tools can only help in the long run, right?

Not always. Before you buy a new car, a fancy camera or a set of knives, think carefully about how long it will take to make that money back. Even a successful side hustle can take time to get going, and you don’t want to lock yourself into something only to find it isn’t a good fit in the long run. Don’t necessarily abandon an opportunity because of up-front costs, but ask yourself if you really need to spend that money off the bat.

Look into Investments

Investments can be difficult.

The value of investments as a secondary stream of income depends entirely on your circumstances. Specifically, how much money do you need to make and on what timeline? This is what often gets investors into trouble.

If you are thinking for the long term, building and diversifying an investment portfolio may be the single best way to create a secondary stream of income. You can seek out income-oriented assets, such as bonds and stocks known to pay dividends. You can build an active portfolio that steadily grows through capital gains. The options are strong and endless. Carefully managed with a view toward the future, this can be a great way to supplement your financial goals.

And don’t stop at stocks and bonds either. Investing can mean far more than traditional securities. Do you know someone who is looking to launch a business? Ask how much money they need. Have you considered REITs, a lower-stakes way of getting into the real estate market? How about peer-to-peer lending sites, which often post great returns? Investment is a wide field of opportunity.

However, if you need money for day-to-day expenses, investing can become very dangerous. Many investors in that position look for quick profits. They sink their money into penny stocks, cryptocurrency and day trading of derivatives, and most of the time wind up worse off than when they started.

Here’s your rule of thumb: Invest. Do invest. Build a good, diversified portfolio, and use investments as a fantastic stream of income for a timeline measured in years. Do not rely on investments to pay your bills or other short-term obligations though. If you need reliable money quickly, seek out a second job or gig work.

Consider Property, Carefully

Rental residenceReal estate might well be the most lucrative secondary stream of income out there. When successful, you can make thousands of dollars with little or no effort by simply owning a piece of valuable property and renting it out. In fact, in strong rental markets you don’t even need to actively manage the property itself. There are plenty of companies that will handle the leasing, management and maintenance on your behalf (for a price, of course).

The options for investing in property vary widely as well. At the lowest level, many people make money renting an apartment with an extra bedroom that they earmark for Airbnb. (Beware: This is often illegal and may backfire.) Others buy vacation homes, intending to rent the property for much of the year, while the particularly ambitious may buy apartments or even small apartment buildings.

This can be extremely profitable. It is also quite risky.

Real estate often has the highest overhead of any asset on the market. Not only is the property itself expensive, but you have to pay for a vast amount of legal, maintenance, insurance and related costs that many first time investors don’t anticipate. If this investment wins it can win big. If it fails, it can fail even bigger. As with all high risk investments, proceed carefully and only with money you can afford to lose.

Consider a Business, Enthusiastically

The internet has made it incredibly easy to start your own business. Far from the days when you needed to find the money for a storefront and shelves full of products, today you can launch a business for no more than the domain name registration fees — if that.

In fact, often starting your own business doesn’t even look like starting a business anymore. Almost all freelancers, for example, operate a small business even if they have never formally incorporated. Anyone selling on Etsy, writing a blog or running a YouTube channel is operating his or her own business. It can be an enormously satisfying way of making some extra money on the side, and – who knows? – if it takes off the business may even become your full-time job.

Start with your passion. What do you love to do? What are you great at? Can you teach, sew, draw, write or dance? And how can you bring that passion to others?

Running a business, any business, takes a lot of time and dedication. It may be quite a while before you make real money, if ever. So you will still need to enjoy the work even when it has barely turned a profit in the past year. Many would-be bloggers run smack into this problem. They start out intending to make a living from their laptops almost instantly, only to discover just how long it takes to turn a collection of writings into a steady living.

Too, your passion will help set you apart in a very crowded marketplace. Everyone needs to answer the question, “Why my product? Why my service?” The skill that comes from real commitment will help answer that question.

The Bottom Line

Creating multiple streams of income can be a strong way to improve your personal finances. Whether you’re trying to boost your savings or build toward a goal, this is a move that many of the most financially successful Americans make.

Tips on Retirement

  • Is it time to consider another stream of income? Whether you’re saving for retirement, trying to buy a house or working towards any other financial goal, a little bit of extra money can always help. But do you need it, and what’s the most tax-efficient way to handle this? SmartAsset’s matching tool can help you find a financial professional in your area who can help you answer exactly that question. If you’re ready then get started now.
  • One part of planning for retirement is knowing how much money you’ll be getting from all sources, including the government. Find out how much you’ll get from Uncle Sam with our free Social Security calculator.

Photo credit: ©iStock.com/IPGGutenbergUKLtd, ©iStock.com/svetikd, ©iStock.com/xeni4ka

Eric Reed Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
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