Several years ago, I was making a six-figure income but living paycheck to paycheck in Southern California. My faux wealthy lifestyle with all the accoutrements lacked financial discipline. I ate out all the time, drove a nice car, and was beholden to a rather large mortgage. During my daily 90-minute commute down the 405 freeway, I would lament on the various things I had done or not done to improve my financial situation.
Around that same time, I was introduced to and moved by the book, Rich Dad Poor Dad, which defines wealth as how long one could live on passive and other sources of iincome, if one were to lose their primary source of income. Despite the fact that I was relatively comfortable, the idea of not having a paycheck was terrifying, as I realized I had built up little wealth. I changed my path at that point. I read all I could about budgeting and investing and I set my sights on building sustainable income.
Today, it seems like there are more ways than ever to add additional streams of income with the growing gig economy and e-commerce opportunities. However, I recommend four primary sources: wages, real estate, small business, and dividends/interest.
1. Wages
Your first stream of income is your job and that of your spouse or significant other. Protect this source by investing in yourself through education, mentorship, and networking. You can improve that stream by earning a promotion or getting a better, higher paying job. You could also look for another job that allows you to work fewer hours for the same money, freeing up more time for other pursuits.
Beware of lifestyle creep and adding additional lifestyle expense as your income goes up. Try to keep expenses relatively flat and save and invest the incremental income you receive. If you have a 401(k) at work, always contribute enough to take advantage of any amount your employer matches. If you do not have a 401(k), invest in an IRA. One day you may want to use those funds to start up or buy a business.
2. Real Estate
Invest in real estate. Buy in the best location you can. Hold on and build equity over time. The advent of working from home, prompted by COVID and technology advances, opens new markets and opportunities to buy real estate as a primary residence and/or an investment. I wanted to grow passive income and was afforded a chance when I moved to Las Vegas in 2008, ahead of the great recession. My wife got her license and we began buying real estate.
Real estate hack: If you/your spouse has a real estate license: you get the advantage of seeing properties immediately; you get the commission when you buy or sell in the area you are licensed for; and there may be tax advantages (consult your advisor).
In order to buy real estate, you first have to build and protect your credit. Put money aside, but make sure you are paying your bills as agreed and maintaining or building good credit.
Yes, interest rates are at a 20-year high today, but investing in real estate is a long game. Rates and prices will fluctuate, but over time you tend to build equity and value.
3. Small Business
My grandmother decided to start her own flower business at 70 years old. After moving to Las Vegas in the 1940s, she did domestic work and was essentially paid “under the table” and never had money paid into Social Security, so she knew she would not receive benefits.
At 70, she reinvented herself. Capitalizing on her love of flowers, she launched a flower business out of her home. She took classes at the community college; got a business name and a license; bought two large commercial refrigerators for flowers in her converted patio; and did old-fashioned word-of-mouth advertising.
Invest in yourself. Take advantage of coursework through non-profit entities like the Nevada Small Business Development Center (SBDC) where you can formulate an idea and even work on a business plan. You can browse businesses for sale just like you browse homes. Check out sites like BuyBizSell – see businesses for sale in your area and get an idea about industry, price, and cash flow.
4. Dividends/Interest:
The silver lining of the Fed increasing interest rates is that, for the first time in a long time, your money is earning more money. While mortgage rates are higher, so are deposit rates for savings, money market, and certificates of deposit (CDs). While this is not investment advice, one can also find much higher dividends, which are payments that companies make to their shareholders. Unlike bank deposits that provide FDIC insurance, stocks are more risky investments.
Finally, develop the opportunities available to you. Be intentional. Write down your goals. I prefer to do it the old-fashioned way, on a notepad. Your goal should be posted somewhere you can easily see it and be reminded of it, which aids in building the discipline you will need to execute.
You have to play the long game. It is never too late to get into the game...sub yourself in. If you are young, you have the benefit of time. If you are older, know that it is never too late to start something to help build foundational and generational wealth.