More than ever these days, it seems everybody is being encouraged to generate multiple income streams in order to create wealth. And, whilst this is good advice for people in this post-modern age, given that for most people their nine-to-five jobs can barely take them through the month, it can be hard to figure out just how to generate multiple streams of income.

What are income streams, exactly?

In geography, there are many streams that can flow into a river, and then that river flows into the sea, which is a large body of water that is beneficial to Earth’s habitats, its plants and animals. Likewise, in personal finance, multiple income streams flow into your wider income pool that will determine its size and whether you will be able to build wealth from it — not just for yourself but also for those depending on you.

So, income streams are, as the term suggests, various ways of earning money while safeguarding the financial future for yourself and your loved ones.

There are two types of income streams: Active and passive.

Active versus passive income streams

An active income refers to income derived from a job that you actively do; that is, providing a service that somebody pays you for regularly, whether monthly, fortnightly or even weekly. In other words, you trade your time and effort for money. This also takes into account side hustles, which is often a transferrable skill that doesn’t get in the way of your nine-to-five job because it’s done on your free time. For example, a high school teacher can offer specialised tutoring to primary or prep school students on the weekend to supplement their income.

Passive income, on the other hand, is income that isn’t directly tied to the regular pay cheque, it is earned from your primary active income source. It is therefore money you can make even while you sleep or lie on the beach. It does not, after your initial effort and input, take up your time and energy the way that an active income source will. It is often overlooked as an option for generating additional income streams and wealth-building, and this is what the focus is here today.

Ways to generate passive income

One of the most successful investors in the world, Warren Buffet, once famously said: “If you don’t find a way to make money while you sleep, you will work until you die.” Which simply means that, while building wealth, it is necessary to find other vehicles of doing so that won’t add to the wear and tear on your body. In other words, find passive ways to earn additional income.

The following are methods to get you started:

• A diversified investment portfolio: This is necessary not just for #retirementgoals. A mixture of asset classes spreads out risk and also spreads out income earned via interest and dividends payments. This is why we encourage investing across asset classes, even with the most risk-averse of clients. Therefore, rather than only earning dividends from equities, commonly called stocks, think of how much more passive income you could be earning by way of yields from holding cash and cash equivalents; fixed income or bonds, including repurchase agreements; real estate, alternative investments, or other non-traditional strategies, such as private equity.

• Interest income: Invest in an interest-earning asset if you have some extra cash lying idly around in a bank account, at the very least aim to keep up with inflation once you have stashed your emergency funds away. The power of compound interest is your best friend in cases like this. Government bonds have modest returns, but if you’re thinking long term, calculated, and methodical with time wins the race.

• Capital Gains Income: By investing in various assets you have the opportunity to gain capital gains when the value of the asset increases; this is separate and apart from any dividends (from stocks) interest (from fixed income assets like bonds) or rent (from real estate).

• Royalty income: Say you’re a creative who is a member of an organisation like the Jamaican Copyright Licensing Agency (Jamcopy), the national reproduction rights organisation established by Jamaican creators of works published in printed form to manage their reprographic reproduction rights, rather than spending the entire annual dividend cheque, regardless of how small you think it is, consider putting it somewhere that it can earn interest.

Bottom line

Unlike active income, passive income provides residual cash with minimal time and effort and is a good way to generate multiple income streams. The benefits of this kind of income generation are many. When you don’t have to trade your time for money, whilst producing additional cash, you not only reduce stress and anxiety brought about by today’s high-pressure lifestyle, but you can also be confident that your financial future is secure. Time is the real currency and anything that allows you to maximise on your time whilst still increasing your wealth should be everyone’s goal.