Alternative Income Streams

ist1_7925369-flock-of-dollar-fly-awayAlmost all of us have full-time salaried jobs where we work hard. We offer our knowledge and/or time to work for any given company. In return, we get compensation and recognition, and many of us eke out an excellent career from it. This is an active form of generating income. When we look at any company, how many times have we asked what are different types of products or market segments it sells into? It is good to have a company that has multiple products for continued profitability. Similarly, wouldn’t it be nice to have multiple streams of income? A multiple streams of income will provide us a safety net against our jobs!

There is a very popular notion of “passive income” that floats around the blog-o-sphere. The essence of passive income is; it is the money earned with or without our involvement. Once it is setup, the recurring income will flow in continuously. In my vocabulary, there is no such thing as passive income. Just because we do not see the effort does not mean it is passive. Instead, I like the term “alternative stream of income”. I am always curious to understand how individuals can create alternative streams of income and how they execute it. Following are few alternatives that I have thought about and tinkered with in recent past.


Income from Interest (Savings, CDs, Government Bonds, etc.,)
etf-selectionPutting your money in a CD and/or bonds is considered to be the safest possible way to generate any level of passive income. These types of vehicles are available through banking institutions and our government.  Here, the interest rate is fixed and individuals could choose to compound the interest. Over a period of time, these vehicles will generate interest income that is in the range of 7% to 8%. This is fixed income and hence, is taxed as regular income. There is notion that these investments are risk free. On the contrary these vehicles have high inflation risk. Since it is growing slowly and principle is safe, we often get the impression that it is risk free. I do not consider these vehicles are investment. They are just different form of cash.


Income from Stocks (investment, trading, funds)

currencyab-280x200In this form of income, there are different ways of generating income. Individuals use different method of trading (swing, momentum, technical, speculation, arbitrage etc) and different styles of investing (growth, value, etc). All are geared towards generating income (or wealth?). Many of us, like me, are part time investors attempting to invest our hard earned money. I do not consider income or salary of professional traders as alternative streams. These traders are actually salaried staff and do not use their own money. It is their bread and butter. It is very rare to see a professional using his own money to trade. I use dividend investing using a value based approach. I have been advised many times that dividends from stocks do not generate sufficient income, they are miniscule, etc. In stocks, it is always better to go for capital appreciation. On this aspect, I will leave my arguments for future post. However, it is my belief that stocks that have a history of paying regular dividends (which come out of good quality of earnings) are likely to provide best real return on investments out there.


Income from Rental Properties
ist1_6443183-townhouse-communityThis is another form of generating alternative income. Depending upon your situation this income can be considered as a passive (to certain extent). If the cash inflow form rental property is more than taxation, mortgage, depreciation, maintenance, etc, then an investor has achieved an alternative stream of income that is a bit passive. One of the risks associated with this form of income is risk of selecting good tenants. I do not get excited about this form of alternative stream, perhaps because it does not suit my personality or it does not fit into my lifestyle.


Income from Part-time Consulting
newsIn this form, individuals could always use time (after full time work) to do some contract consulting or advising based on their skill set. For examples, accountants provide taxation services, some provide house maintenance services like electrician, plumbing, painting, etc., writers provide additional articles/columns, bankers provide personal finance services, and engineers provide extra consulting services.  Here, it takes time and effort to build the reputation and service that you provide. Individuals have to forego their personal free time in order to build this aspect of alternative income stream. I had tinkered this in past, and had sufficient professional skill set to add an income stream. I stopped it and decide to let it go, primarily because I wanted to do something different than my professional skill set. These activities became mundane day in and day out. Life is much more and making money. It has to be enjoyable and generate curiosity.


Income from Blogging
ist1_8982997-blog-orangeIn last few years, blogging is being touted as an easy way to make money online. There is a general perception that this is an effortless way to generate alternative income. I view this as similar to misunderstanding of investments/trading. Those who regularly read blogs would know that many bloggers (including me 😉 spend considerable amount of time to think and write on any relevant topic. To a certain extent many bloggers reduce the “feeling of big effort” required by simply blogging about the topic that they like or take it as a hobby. In my case, I take it is an online diary, journey, or continuous learning, and I like to write. It takes time, effort, perseverance, and consistency to be able to generate any amount of alternative income from blogging. TIPBlog.in has initiated an additional revenue stream for me.


To Summarize…

ist1_8446828-read-thisIt is possible that many of us will think that these alternative streams of income will never be able to replace our current salaried incomes. Interest earnings or dividends will never be enough because they will be very small. For them to have a significant impact, the principal amount must be pretty big. Where will this big principle come from? This thought process is same with blogging and other alternative incomes which are perceived to be very small.

I would say that it is our mistake to expect it will replace our earnings immediately. It’s about future and not present situation. I studied and worked hard for 21 years to earn my current income (12 years of schooling, 4 years for bachelors, 2 year for masters, and 3 years for doctorate). Therefore, it would be unrealistic for me to expect that these alternatives income streams will replace my income from salaried job. However, it is realistic and certainly possible to select at least two alternatives and build those streams with sincere effort. Over time and perhaps 15 years down the line one is bound to succeed.

What alternative streams do you use? If you have any other streams, would you share it with readers of this blog?









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11 Responses to “Alternative Income Streams”

  1. Hi TIPGuy
    Thanks for opening such a wonderful topic.

    I have started admiring you more when i came to know about your education. I am very small person not well educated like you, I have done my B.Com only.

    One of the income (I would say it as income) i am having from is my Home Loan.
    With some workout I have set it in such a way that 25% of my home loan is invested in the market and i am getting decent returns on it and interest part on that 25% is tax deductible. I do nothing illegal. I show my profit/s Losses in my returns.

    My belief about home as an asset is if it is generating +ve cash flow then only you can consider Home as an asset. if you are paying Principle & Interest towards home loan then it’s liability until you serve the complete home loan.

    Currently some how i am managing to earn more than what i am paying towards my EMIs So i can proudly say it’s my asset.

    MIP

    • TIP Guy says:

      MIP,

      I couldn’t understand Home Loan and investing + cash flow? May be you can write a post on this subject on your blog.

      Thanks for the compliment.

      Best Wishes,

  2. Hi TIPGuy
    It’s a nice idea to explain this type of arrangement to public, but surely leveraged investments is a subject of dislike for many.
    In overall i will say that how you use Top up amount of loan to generate more returns than your total Home Loan Interest. The crux lies in interest you pay on top up is considered under 150k Interest limit, and you can earn money by investing that top up amount in the market.

    Total Returns = tax saved + Capital gain

    I will let you know if i could ever write this in detail.

    Thanks

  3. Vikrant says:

    tipguy,

    Had been thinking about another source of income for years, have taken a exam for being a insurence advisor and scored like 85% but never did any business for the company or myself. I feel like taking up something now after reading this.

    Anyways just to share with the readers of the blog , being a insurence advisor is not bad, you can work on weekends or your free time and make good comission, if not are not lazy like me, you have to work hard but i feel it is certainely a good stream to use.

  4. Hello friend , Why dont u put facebook badge on your blog? Because I want to follow your fb. Thank Regards Admin of wayan.web.id

  5. Raja says:

    Hi,

    Wonderful Wonderful Wonderful… Just going through your old posts one by one and liking it more by the minute.

    I do vegetable gardening. It doesn’t earn me anything but surely saves me the expenditure on veggies,travel cost etc…
    Since some time i have been thinking about working on my CFP certification and working part time as a personal finance consultant. I feel there is a real need for such professionals and additionally i have lot’s of interest in personal finance. What do you say ?

    Regards
    Raja

    • TIP Guy says:

      Hello Raja,

      Glad to know you are liking my old posts. I hope by liking you meant facebook Likeing old posts 😉

      Gardening seems very interesting. I did check out some photos on your blog. Will do more. I find it soothing and relaxing to spend few minutes in one’s own garden. That itself is worth having one.

      Regarding CFP… It is your personal decision. No comments. Don’t get me started, but summing up, I think certifications are over-rated.

      Good Luck.

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