Extra Income Streams

On active and passive income: a family affair?

Income streams - make money

Many people find that the income they derive from their monthly pay check is no longer adequate to meet their lifestyle needs. In fact, some research suggests that the average person spends up to 75% of their disposable income within the first three days of being paid! In previous years, to achieve above-inflation salary increases, many workers opted for the revolving door approach: every two or three years they applied for a post elsewhere. Then, after about the same period, they applied to the previous company again, but for a higher salary. With present unemployment rates, this is a risky approach.

And so we sit at our desks, scroll through FaceBook links and dream…Where can I find extra streams of income that require little or no work? What can I actively do to improve my income?

Up pops an Instant Messenger message from your cousin thrice removed (whom you’ve never met)

“Boy! Have I got a secret to share with YOU! You can earn millions of tax-free US Dollars within the first 60 days! I am sharing this only with my closest family, in the memory of our great-great-great-grandfather who introduced the concept to our great-great-great-uncle’s son’s nephew. But hurry! This is a once in a lifetime, time-limited offer!

You, too, like me, can be sailing around the world on a yacht (see idyllic photos attached). Fear not! I am available 24/7 – just for YOU! I will walk you through the steps via the Internet.  All you have to do is subscribe to my newsletter, buy my tailor-made course, deposit your life savings into the offshore account provided, swear never to tell anyone else, sit back and wait for the money to roll in.”

We all should – and probably do – know better, but what if this time …?

A scam by any other name, will smell as sweet

It can be difficult to smell a dead rat. Fraudsters are extremely cunning at disguising the offending odour. They play to your fear of the future, they play to your sense of belonging, they play to your sense of adventure, and they play to your yearning for a better life for your family.

You may avoid falling for scams by asking yourself these simple questions. If you answer yes to any of the following, there is a good chance that it is a scam.

  • Have you been contacted out of the blue?
  • Does this deal sound too good to be true?
  • Have you been asked to share personal details?
  • Are you being pressurised to respond quickly?
  • Are the contact details vague?

There are flat-out scams. The ones that take your money and run. Then there are the semi-scams, which provide some value, but fall far short of what they claim to offer. Or, they give you something up front, only to pull you further into their money-sucking schemes. This is why it is always wise to have the experts on board – especially when there are decisions to be made about significant investments.

At Northwood, we expend considerable effort in helping our clients to overcome money challenges. We use various techniques which, if applied, will make a difference. One of our main aims is to help clients build multiple income streams. The put-all-your-eggs-in-one-basket model is no longer relevant in today’s social and economic climate.

A cursory search on Google tells us that millionaires have a minimum of seven income streams.  

In order to understand the mechanics of the multiple income stream approach, let us consider the differences between the two main categories of income streams:

Active income – can I make money from my hyperactive children?

For the majority of people, active income streams are related to their day jobs. Whereas the income from a spouse can add to your disposable income, child labour (though requiring much active effort) is not the answer for expanding your income in this way! A secondary active income stream could be from a ‘side hustle’ – a business that grew out of a hobby or a specialized interest.  

Passive income – Can I rent out my 90-year-old grandmother?

Most of the so-called passive income ideas rely on gullible investors who are likely to lose their investment. Passive income is money earned from an idea, asset or investment which requires minimal activity and without constant supervision.

Rental from a residential property is a good example of a potential passive income stream. It can only be considered as ‘passive’ if you use a property manager. Consider how ‘passive’ you would feel if you have to deal (by yourself) with the horrors of a burst geyser in the middle of the night, in winter, on a public holiday and you discover that your dodgy tenant have skipped town at the same time.   

Whereas your grandmother may not move around a lot and does not require much supervision, it takes skill and constant vigilance to identify viable passive income streams. Each has to be evaluated carefully in order to ensure realistic projections. Despite the need for caution and skill, it is possible to earn a substantial income from carefully created and monitored passive income streams. The best outcomes rely on a good team: professionals, such as a reputable financial advisor, who can show you how to leverage bank finance, a hands-on property or business manager, who is skilled at dealing with day-to-day management of your assets, and a well-informed Self!

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