Developing multiple income streams

I had yet to complete my apprenticeship although I was either close to, or considered an adult at this stage, so I was around seventeen or eighteen. I had a group of friends who were older than me by a number of years and they were transitioning to their new lives with their partners.

We became involved in Amway and they were doing ok; me not so good though as nobody was interested in being signed up by someone so young - I understood and accepted that. I went to all the meetings where they taught their network marketing scheme and was actively involved.

They were heavily involved in motivation and that is what I really enjoyed - being around motivated people. They also taught basic business and finance principles and one of the concepts I really embraced was generating multiple income streams including a passive income.

For the majority of people their primary income is from their paid employment or through their business; should they become injured or fall sick and become unable to work for a period, they would normally endure financial hardship.

A second job on weekends or evenings brings in a second income as does freelance work or a small business servicing clients. These are still generally related to your direct labour inputs, although a small part-time business may hire staff.

What interested me the most was developing a passive income; that is an income that is not directly derived from my sale of labour. A passive income may be derived from sources such as bank interest, although that is generally a poor return with low interest rates requiring a relatively large capital investment for little return.

Cash is important as a buffer although very inefficient in terms of returns, cash holdings may be funds reserved for future investment opportunities. Fixed interest through term deposits and bonds is a reasonably defensive strategy allowing a degree of diversification.

Residential and commercial property derives an income through rental income although a high capital expenditure is required, sub-letting a room is more efficient but you have to share your home with someone.

Dividends from shares is a brilliant passive income with an advantage in Australia of franking credits from dividend imputation removing the double taxation burden.

Reinvesting your dividends is the best course of action if you don't require the income to support yourself as you are really investing in future returns setting up the longer term. I prefer long-term investing and generally shy away from short-term investments instead seeking an income stream so your initial capital isn't eroded over time.