I have always had an entrepreneurial spirit. When I was young, I worked the playground economy and traded baseball cards and other trinkets, wrote papers and book reports, and found other creative ways to make a few bucks here and there to supplement my allowance. It was primarily fun for me then, and my money was just as quickly spent on baseball cards or something else I probably didn’t need.
As I’ve grown older, the desire to create things and earn more than my allowance (now a salary) never left. In fact, it has grown stronger. Most people in today’s workforce cannot rely on receiving a pension at age 55. If I am going to be able to retire at a young age I will need to contribute a lot of money to my retirement accounts and I believe that the more I contribute now, the less I need to contribute later.
One strategy I am using to contribute more money toward my retirement accounts is to create alternative income streams. My current goal is to become a millionaire, followed by my ultimate goal, which is to be able to retire with enough money to last the remaining years of my life.
Defining alternative income streams
When I talk about alternative income, I am talking about anything that I don’t earn through my day job. This could be money I earn from my home business, earned interest and dividends, monetary gifts, or money I get from bank bonuses, credit card bonuses, or other sources of free money. Other examples could include working a part time job, receiving rent from a property, royalties, etc. These are all forms of income I don’t rely on for my day to day living expenses, which gives me additional money every month to reach my financial goals.
Why alternative income streams are important
In many ways, alternative income is just as important as your regular paycheck, and potentially even more important if it is passive and requires no additional work to continue creating income. Here are a few more reasons why alternative income is important:
Don’t put all your eggs in one basket. I am a firm believer that your ability to generate income is your greatest asset. You career is probably the largest contributor to your basket, should only be part of that equation. The economy is bad right now and we are in the middle of a financial crisis. Unemployment is increasing and many people are having to deal with sudden decreases in income. Alternative income streams help ease the loss of a job or your main source of income.
Options. Like investing a lot of money early in life, alternative streams of income give you options. Last year, my wife left a higher paying job so we could enjoy a better quality of life. At the time she was working long and irregular hours and it was difficult for us to spend time with each other. So we decided to cut back on our budget and begin saving money while working toward a transition when we would become a one household income. As part of that transition, I began a home business to increase our income. The additional income is irregular and may not replace 100% of her income when she stops working, but it will certainly make the transition easier.
Non-existent pensions. Pensions have all but disappeared in the US. Gone are the days you could join a company after high school or college, work there for 30 years and get a gold watch, a pat on the back, and a paycheck for the rest of your life when you retire. Social Security is also in a perilous situation. Most people don’t have the comfort of knowing someone else will take care of them in retirement age. Alternative income streams help me contribute more money to my retirement accounts now so my retirement years will be easier.
Help reach your financial goals. Using alternative income is a great way to reach your financial goals – whether your goal is debt reduction, retirement, saving for a big ticket item, putting your children through college, or something else. An additional income stream means you can put your financial goal(s) into hyperdrive.
Alternative income equals freedom
I think everyone should strive for some form of alternative income stream – even if it is just earning interest from a CD Ladder or a high yield savings account. The key is to have your money working for you until you can reach the point when you are less reliant on a single source of income.