On today’s episode, we are talking all about multiple streams of income. When making money, you can either make it all from one source (such as your job or one business) or you can make it from multiple sources (ex. multiple businesses). We definitely favor generating income from multiple sources, for many reasons.
So in today’s episode, we are going to talk all about multiple income streams and share the top 5 reasons why we love using this strategy to generate our income.
Episode Key Points
- Learn about one of Tom’s first online businesses that he started in college
- Our top five reasons that we LOVE multiple income streams
- Why diversifying your income makes sense
- Why several smaller businesses can be better than one large business
- How having additional income outside your job can help you enjoy your job more
- How you can get more tax deductions by having one or more businesses
- How to implement a divide and conquer strategy with your spouse
- Learn about cashflow patterns of normal vs. wealthy people
- Our recommendation for how to start multiple income streams
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Serial Start-ups Podcast Show 2 Transcript
Ariana: This is the Serial Start-ups Podcast Show 2. In this episode, we are going to discuss five reasons why we believe you should have multiple streams of income.
So to start the show every week, we’re going to have sort of a general discussion topic. We might have a question for each other. We might answer somebody’s question. We might share a little known fact with you or a lesson, a business lesson or even a life lesson. So this week we’re going to start with a little known fact about Tom. Tom’s entrepreneurial itch I guess you could say started off early and one of his many business ventures was when we were in college. Ask him what he did.
Tom: So, this is unique and let’s just frame this. So back when I started this business, we didn’t have smartphones and most people that had a phone, it was a flip phone. It had one of those giant antennas and most people didn’t have internet access.
Tom: But the business that I started was buying used books at thrift stores and then selling them on Amazon. So this was before the Amazon FBA, the Fulfill by Amazon program really became big. I had to pay $10 a month to get internet access on my phone.
Ariana: Blackberry, I remember.
Tom: It wasn’t even a Blackberry at that point.
Ariana: What? Oh that’s right. You did start with a flip phone.
Tom: Yeah. So this one still had the nine keys or whatever. But basically I can type the ISBN number from those books into the thing, into the phone, and it would check on Amazon for what those books were selling for. So the key in business, buy low and sell high. I would scan, I would spend a couple hours on a weekend scanning a whole bunch of books and if I could buy it for 50 cents, a dollar, two dollars, and then sell it for fifteen dollars or more on Amazon, I would do that.
Ariana: Super cool college kid at a thrift store.
Ariana: But I will say it was a pretty good business for him to start. It was a low…it didn’t have a ton of work to put into it. Time consuming a little bit, when he was sitting typing the ISPs in but he did find quite a few books that were worth some good money and was able to make a good portion of that back.
Tom: Yeah I mean there was one book, I bought it for two dollars and I sold it for $350. So in terms of time, it was a couple hours on the weekend and then more of it was just systemizing the packaging and setting everything up.
Ariana: Yeah, I remember we bought bulk envelopes and we would sit and we had to weight them and make sure we had the right amount of postage on them.
Tom: And I think going back to your point. I think you bring up a great point of, you’ve got to start with you’re at, at that point. I didn’t have a lot of money. I was a broke college kid. But that brought in enough income to cover my expenses for the week and it didn’t cost a lot of money to get started with. So sometimes starting the business is just what’s the lowest barrier to entry where you can get started.
Tom: And I know I learned a lot from that business.
Ariana: Now to jump over to our show topic for this week. The reasons we believe you should multiple streams of income. So I’m going to let Tom start with reason number one.
Tom: Yeah and this is a very controversial topic. I think multiple streams of income, a lot of people think about, it’s kind of like the Holy Grail. It’s a lot of what the gurus pitch. Build multiple streams of income, that way if one goes down, the rest will stay running. And we generally believe that. We’ve done it ourselves and we’ve seen the benefits there so multiple streams of income may or not be for you, but hopefully as we talk through this show, you’ll see why we believe it is for everybody and we define it a little bit differently than I think most do. So the first reason is to reduce your risk. So if you listen to the first show and if you haven’t, I recommend jumping over to serialstartups.co/show1.
Tom: We talked about diversifying where you get your money from. So if you’re going to go out and invest in a stock and if you go and talk to a stock broker or anybody. They’re not going to say put all your money on Apple. Or if you go to a casino, you probably shouldn’t put all your money on black. What you want to do is actually diversify where your income comes from so that you’re reducing your risk because if you get all your income from one place, and the example I use all the time is a job, if you have one job.
Ariana: You had one job.
Tom: Exactly. Any time I hear that that’s exactly what pops into my head. You had one job.
Ariana: Not what we’re talking about this time.
Tom: But that’s exactly it. So if you have a job, and you lose it, you don’t have any more money coming in. And now you’re going to be in a rough spot. So that’s why a lot of people, their multiple streams of income is simply having a second job. That may be your spouse or partner getting a second job or that may be…
Ariana: Or a part time job on the side.
Tom: Exactly. And what that does is then if you lose one of the jobs, you still have the second one. But how we expand that when we look at business is your job is really your first income stream and then everyone can start a side business whether it’s a small crafting business, whether it’s something online…
Ariana: In home parties are popular.
Tom: Yep, and Ariana actually did that a couple years ago.
Tom: And going back to that point, that’s a low barrier of entry and it’s a good way to get your feet wet. So ultimately if you can start bringing in income streams from multiple sources, you’re going to reduce your risk of relying too much on one of those sources and then be in a tough spot if you ever lose that job.
Ariana: Yeah and reason number two, this is Tom I’m quoting here, hitting singles, not home runs. For a lot of people, it’s really difficult to have one thing that is going to make you a lot of money per year. Everyone has their jobs but to go out and create a business that’s going to make you the same amount that a job can make you per year.
Ariana: That’s really tough to do, especially when you’re starting from scratch. And if you don’t have any experience in a business previously, that’s something that’s really tough to go out and do very quickly. So it might be easier if you are creating several smaller businesses, large enough that you’re going to make the money and it’s going to be worth having it, but you don’t have to compete with those bigger companies, you don’t have to worry about a lot of the other things that people have when they start a big business and are trying to make it successful right away.
Tom: Yeah so if we go back to the job thing, if your job is your only source of income, you have to really be the best and keeping moving up and you may have to move into positions you don’t like just because that’s the only way to make more money.
Ariana: Yeah and if you’re starting one business, then you have to make sure that business is the best business it can possibly be.
Ariana: You’re going to be putting all of your time and effort into that business. And if it’s not successful, then you just wasted all of that time and you may not have even generated any income from it.
Tom: Yeah and if we look at the flip side of that, so if you have a second income stream, you may be able to get to a good position where you enjoy your job, you don’t have to move up because of the money, but you’re able to have other income streams that will give you additional money so you can enjoy what you’re doing for your day job and then also enjoy being able to bring money in from those other businesses.
Ariana: Well and there are a lot of people out there too that like working, that like doing what they do, and you know that’s something that if you have multiple streams of income, you can always continue to work part time and take contract jobs or do whatever you want to do, plus you have that income coming in on the side that’s going to keep you healthy and happy at home.
Tom: Yeah and I mean that’s a big part of me so I still do consulting work and I love the consulting work I do.
Tom: I help organizations, small and large, figure out how to build their next product or build their next really income stream in a lean way and focus on the right things. So I enjoy doing that but if I had to keep moving up a corporate ladder, then I wouldn’t be able to enjoy that as much but I can enjoy that because we have our other income streams coming in to help support that.
Ariana: Yeah and I mean the next couple years as a part of our goal is to allow Tom to continue consulting but on an as-needed basis or as he would like to do, not having to go and do that every day and go every week. So that’s definitely one of our goals.
Tom: Yeah and if we look at just another example. So with real estate, we started out and we’ll get into real estate more probably in a future podcast, we’ll really go through our business in detail, but we started out buying duplexes. The reason you can buy duplexes and start and real estate pretty cheap is because most big time real estate investors aren’t going to go and buy duplexes because as you see, as you build your businesses, typically you can get more return for bigger investments without as much work.
Tom: So you can usually get started with starting with duplexes or even starting a business that isn’t being fulfilled by some of these bigger businesses.
Ariana: Yeah and to jump back, talking about Tom being able to cut back, how much he’s working, that’s actually our reason number three. And I’ll let him talk about that because he’s the one that is going to be leaving his job.
Tom: Yep, and actually so I’ll jump back to Ariana. So Ariana actually left her job three and a half years ago right? So we had set out a goal. We actually went, we started out with one income stream which was me working. Ariana then had some part time jobs while she looked for a professional job with her zoology degree. Did you ever find a professional job with your zoology degree?
Ariana: Not really, no.
Tom: So how about that 50 grand that was spent on college?
Ariana: You know, it happens. I did work with animals but it was not required that I have a degree to do so.
Tom: So anyways, we built up multiple income streams first just with our jobs. And then as we started building these businesses, we were able to have Ariana leave her job to stay home with Alaina when she was born and then that freed up more of her time to actually build up our businesses which is then going to allow me to leave consulting to choose what consulting I do at some point in the future. So, you may end wanting to keep your job if you enjoy it and that’s totally fine. We’re not saying that you have to leave your job but you don’t enjoy doing your job, this is where building up those income streams, essentially you’re just going to replace your income and when you get to that point, now you have the option of leaving your job and that’s when you really have complete flexibility.
Ariana: Yeah, finding something that you want to do. Reason number four is tax deductions.
Ariana: A lot of people forget about these. A lot of people don’t know how to take these correctly. We actually have an accountant. We actually met with him yesterday to talk about some of the stuff.
Tom: And we would highly recommend, if you’re going to get into business, an accountant is probably one of the first people you want to talk to because business is all about the financials and if you don’t understand, you probably shouldn’t understand right away how to manage all the accounting aspects, get a professional to help you.
Ariana: And find somebody you’re comfortable with, hopefully that you can get along with and that’s going to learn your businesses from the bottom up and know your history so that they can help you make the best decisions about all this type of stuff. But the tax deductions, as an employee of somebody, you get taxed on all of your income. We’ve got the state taxes. We’ve got federal taxes. And if you ever look at your pay stub, you know there’s like five or six things listed that get taken out of your paycheck every week or biweekly, however you get paid.
Ariana: When you have your own businesses, you still do have to pay taxes on them, but the nice part of having your businesses is that you get to take additional tax write offs. We run our business out of our home so we take the home office deductions, our internet, everything we do for the businesses is on the internet, on our computers, we use our cellphones – everything that you can think of you can use part of that or all of it at some points to have an additional tax write off on your business.
Tom: Yeah and a lot of people focus on how much money they make and that’s one of the big problems is someone may say well I make $50,000 or $100,000 or a million dollars a year, but the key thing is how much do you actually take home and keep? And as an employee, you can’t really affect how much you take home or keep because the government is going to tax you. Most people will enjoy some tax deductions for example if you own a house; you get a deduction for the mortgage interest you pay.
Ariana: If you have kids you get deductions.
Tom: Yep. So, but that’s kind of the extent of it. But if you’re a business owner, anything directly responsible for your business is a write off. So when we buy a new laptop to run one of our businesses, that’s a write off and we’re not paying as many taxes on our overall income. We have just a lot more flexibility with how much we end up paying in taxes and by working with a professional like our accountant, he can give us some direction of well, here’s well we should be investing our money or spending some of our money so that we’re reducing our taxable income and are able to actually keep more of that money that we worked so hard to get.
Ariana: Reason number five?
Tom: Yep. So divide and conquer and I think this is a big one for us, especially if you’re working with your spouse or partner. When you have one business, you may end up being able to work with your partner on it, but often times, partners can’t work very well together.
Ariana: We hear this a lot from our friends and family, and just people we’ve talked to online.
Tom: Yep, so another reason is if you guys are wanting to build some of these income streams to help you out if you’re married or in a relationship, you may be able to actually have one business that you’re running and another business that your partner is running so that you’re actually building multiple income streams at the same time but you’re each able to focus on the business that you’re doing.
Ariana: One of the ways a lot of people can do this is those home party businesses are very successful for a lot of people. And that’s an option you have if one of the spouses is working on a side business and you aren’t quite sure where to start for your own, there are a lot of options out there and a lot of people are doing those home party businesses. They’re easy to start, you put a little bit on money down to get your stock that you carry around and those are a little bit easier to build because it’s on a person basis and you start off with family and friends and then you grow from there. But I think that’s a successful way for each partner to kind of start and have their own business if they don’t want to have to work together on one single one.
Tom: Yeah and that’s kind of what we did in the beginning so the real estate was really my business. I did all the work for that, partnered with my father on one of our businesses, and at the same time, you really had no interest in real estate. I’m surprised I was even able to get you to buy the first duplex. But you started the whole party business. We each kind of did our own thing and then we said, well what’s working, and then we ended up continuing the real estate one because that one was what was working for us.
Ariana: Well and that one, I mean we kind of got started a little bit slow and then as a grew, you really needed help with some of the office stuff which I’m pretty good at so it was easier for me to take over that portion and then you went every weekend and were helping dad and you guys were pretty much fixing the houses that you’d purchased and we were getting everything ready to rent out. So at that time, that was what worked best for us. Then when I left my job and you were still working the nine to five, it just became easier for me to take over a lot of the real estate business because I was home.
Ariana: And then we kind of just touched based every now and again to see where things were and that took a lot of stress off of Tom.
Tom: Yeah so when we started we had different businesses and that was our divide and conquer strategy but now it’s dividing and conquering within the successful business and were each using our strengths to make sure that we take those pieces of the business and then we have help with each other on the piece that we aren’t that strong.
Ariana: Yeah, do what makes sense for you.
Tom: So those were the five tips for why we think you should have multiple income streams but one more thing that I want to talk about here that I think is so critical and so many people miss is this concept that I learned actually reading Rich Dad Poor Dad by Robert Kawasaki. And we’ll have a link to that book in the show notes at serialstartups.co/show2. But if you haven’t read this book, I highly recommend it. This book changed my way of thinking about money and just success overall.
Tom: And one of the things he talked about in there was basically how your money comes in, where it goes, and what you’re ending up with. And what he talked about and I’m going to paraphrase this and it’s going to be more in kind of what we experienced but most people use the casual pattern of you have a job and you get a paycheck from that, and the money that comes in as income. And then from there, you end up paying your monthly expenses from that, you end up paying or buying liabilities so you end up buying a car, you’re buying your PlayStation, if it’s me, books or crafting supplies if it’s Ariana, and ultimately those liabilities will create more monthly expenses. So if you buy a car, now you have a car payment. So the problems with this pattern is money comes in from your job, it goes out to all your expenses, and then that cycle repeats. So if you stop working your job, you don’t make any additional money and now you have all your expenses and liabilities that are costing you.
Ariana: And I’m going to jump in here, if you’re a visual person as opposed to an auditory, we do have some graphics of this process and the cash flow pattern on our website, serialstartups.co, and click on the Start Here. And you can kind of follow along and just see some of the things Tom is explaining and some nice graphics.
Tom: And what we’ll probably do is just put together a nice .pdf download so that you guys can follow along and see how this applies to you.
Ariana: We’ll put it right in the show notes.
Tom: So now if we look at how successful or wealthy people, what their cash flow pattern looks like. So, when we recommend people start their first business, it’s the same type of thing. Your money comes in from your job, but then what you want to do is this concept of pay yourself first. So take money from that and invest it. And you want to invest that into assets. So that’s basically either investing into a stock, starting a business, but basically you’re spending that money on something that’s eventually going to make you more money.
Tom: So now instead of having that money first go to your expenses and then to buying liabilities, if you buy assets and those assets will bring you more money, now you suddenly have those multiple income streams we’re talking about. So now instead of just your job making you money, you have your job plus whatever your first income stream is. So now as that cycle goes in, you can use those assets to start paying your expenses and paying or your liabilities and then once you’ve paid off your expenses and liabilities, you still have the money coming in from those assets. And now the third pattern is where we recommend people really get to, is taking what we just talked about and doing that multiple times. So if you’re taking the money from your job and you’re investing it into a business or something that’s going to bring you more money in and then you do the same thing, now you take the money that’s coming in from your first income stream and you invest that back into either building that income stream higher or building a second income stream and building a third and building a fourth.
Tom: Eventually you’re going to have a whole lot of income streams coming in with money and then you’re really going to start to expand that gap between how much money is coming in, how much money is going out, and that’s when you get to the point where you can probably leave your job because those income streams have not replaced your income. So like I said, we’ll have a download for this because I think the visuals and the graphics help a lot more. But ultimately, what we’re trying to say here is, when the money comes in, if you can first focus on how do you put that money to work for you to make more money, instead of having that money come in and then immediately go out the door for your expenses; that’s what’s really going to help you build wealth, have options, and then actually get some of that freedom.
Ariana: Yeah and we’ll talk in another show about some of the ways that you can cut down on your expenses and also have some goal planning to pay off some of those expenses. But for our tip of the week this week, our suggestion is to start with one.
Ariana: One business – don’t go crazy like Tom and try to start five million things at the same time because he’s done that before. Once again, reality checker.
Tom: I still try to do it all the time.
Ariana: He still does all the time. We don’t want you to try to create those multiple streams of income all at the same time. We recommend a process, a basic process. Start off with your goal planning. Tom is a big, big goal planner which is a good thing because if he wasn’t, it would be a lot harder for me to get him to calm down with the ideas.
Tom: And on the flip side, it helps to bring you along and help align us on what we’re trying to do. Because you said earlier, I think it was in our first show, if I had explained some of this rational around buying the duplex, that might have changed what we did.
Tom: But back then I don’t think we talked nearly as much and weren’t nearly as aligned as we are now.
Ariana: No, we weren’t as big on goal planning back then either. I mean a lot of people don’t do goal planning and they don’t even think about the fact they should be goal planning. But we suggest it for everybody and anybody.
Ariana: And we’ll probably have a .pdf at some point about how to start doing that goal planning.
Tom: We’ll probably do another episode just dedicated to goal planning.
Ariana: Yeah, and then another big one is time and money analysis. Obviously don’t go out and start a business if you can’t support it with your time and you can’t support it financially. You need to make sure that those two are in line. I think you need to know what you need to set aside to start that business and what time you’re going to have to put towards it so that it can start off and be successful. And then also, we want you to think about your business selection and make sure that what you’re choosing to do is something that you can really be successful at, something that you like, something that you know is the market needs.
Tom: Yeah so there’s a lot to starting a business and we’re going to have a bunch of podcasts around topics like how to get past analysis paralysis, how to actually get started, but if you need a little bit of help, we’re here.
Tom: And we’ve actually put together a whole bunch of resources to help you with that. So if you’re interested, go to serialstartups.co and click on the Startups Academy. This is a private membership site that we have. We have a bunch of people going through it right now. And we’d love to have you there and in that Academy we’ve got a program called 30 Days to Launch. And it’s all about going through and taking you guys day by day through goal planning, figuring out what assets you have, and then how to pick a business and then how to actually get it started in 30 days.
Ariana: Yeah. So that is our show for today. Thank you guys for listening in and we will talk to you guys again next week.
Tom: Alright, we’ll see you next time guys.