When I recently polled my LinkedIn followers about their financial goals, “Optimize your income” scored the majority of votes. It makes sense because income puts more muscle into building up your savings and paying off your debt. Notice I didn’t say increasing your income. Why? Because there are plenty of ways to increase your income that might not be desirable. For example. I don’t want anyone working 60+ hours a week to achieve their financial goals. This is why optimizing your income is the key. It’s about figuring out exactly how much money you need to live your ideal life, then finding the best income sources to support it.
Here’s How to Optimize Your Income
Develop Multiple Streams of Income
How many streams of income do you have in your household?
Millionaires, on average have seven streams of income, not just one or two! The main benefit of multiple streams of income is diversification.
If one of them dries up, yes, it might suck, but it won’t ruin you financially.
Here are my 7 streams of income:
My husband’s paycheck GE Aviation
1:1 Financial Coaching clients
Book Royalties from Amazon & Audible
Online courses & membership
Dividends from ownership in another business
Corporate Money Wellness webinars
These income streams provide a varying degree of cash from month to month and year to year. My husband’s paycheck is the steadiest and most predictable stream. Some years it’s our largest stream, but not always. This year, one of our other streams is gushing like crazy, and his salary will account for less than 20% of our total income. One common income stream we don’t have is rental real estate. Neither of us currently desires to be a landlord!
Understand the Difference Between Active vs. Passive Income
Some income streams are 100% active; some are 100% passive. But many fall on a continuum between the two. As an example, let’s look at my income streams and see if they are active or passive.
1.) My husband’s paycheck with GE Aviation: ACTIVE! If he doesn’t show up and work, he doesn’t get paid.
2.) 1:1 Financial Coaching Clients: ACTIVE! If I don’t deliver the coaching services, I don’t get the revenue.
3.) Book Royalties: PASSIVE! I get sales via Amazon and Audible every month even when I don’t promote them. If do get active promoting them, I make more royalties!
4.) Online Courses & my Membership: PASSIVE – mostly. It does take a little bit of effort to market these, but not much. Once someone buys a course, I do NOT have to do any work to deliver it since everything is automated.
5.) Affiliate Income: 90% PASSIVE! I basically get paid to recommend a product I already love. All I have to send a link to someone who’s interested. Occasionally, I’ll host a JV (joint venture) webinar to promote something I’m super passionate about, like Katya Varbanova’s Viral Content Club©. So far this year, I’ve made over $3,000 for 3 hours of my time promoting Katya’s Club.
6.) Dividends from ownership in another business: PASSIVE. I do zero work and still get a check. My only work is to go to the bank to deposit it.
7.) Corporate Money Wellness Webinars: ACTIVE! If I don’t show up to teach them, no dinero for me!
When you’re thinking about diversifying your income streams, consider how active or passive each one will require you to be in order to keep the cash flowing!
Know the Difference Between Assets & Income Streams
Income streams are assets, right? And are all assets income streams? I can see how this could be confusing, so let’s define both.
ASSET = A resource that provides present value and can be sold for cash
INCOME STREAM = A source that provides a regular stream of money to the owner
Based on these simple definitions, not all income streams are assets. If you can’t sell the income stream for cash, it’s not an asset. For example, my husband’s job at GE is one of our income streams. But it’s not an asset, because he can’t sell it to the highest bidder.
Not all assets are income streams. For example, we currently own our house, precious metals (gold & silver coins), and other things of value that do not provide us with monthly cash flow.
The real goldmine is when your asset is also an income stream! You could sell it immediately for a one-time cash infusion, or continue to own it and receive regular cashflow. Rental real estate is wonderful example of this. If you owned a duplex, you could list it with a real estate professional and sell it. Or you could hold onto that asset, rent out the two units, and receive regular monthly cash flow from your renters. The ownership of dividend-paying stock is another example of both an income stream and an asset.
Here’s one that causes a lot of confusion: “Aren’t my retirement investments an income stream?” Yes, but only if you are taking withdrawals! If you’re under 59 ½ and still accumulating funds for retirement, your investments are indeed assets. They’re just not an income stream yet.
Creating multiple streams of income allows you to build a more stable financial situation for your family. If you want my input on how to optimize your income, let’s chat! It’s something I help my clients do as a part of my Financial Dignity® Coaching.