How To (Actually) Build Multiple Streams Of Income
May 27, 2024Episode 224
Mel H Abraham, CPA, CVA, ASA
Are you ready to finally understand how to build multiple streams of income and secure your financial future? Discover the secrets of diversification and leverage!
In today's episode, I dive deep into the necessity of having multiple streams of income and how it's more crucial than ever. I break down my five income framework, showing you how to move from active income to leveraging business, asset-based, residual, and portfolio income. Learn from my personal journey and see how creating various income streams can safeguard your financial stability, especially during life's unpredictable moments.
Want to create a money machine and achieve true financial freedom? Tune in to the full episode now!
IN TODAY’S EPISODE, I DISCUSS:
The importance of income diversification and reducing financial risk
The five income framework: Active, Business, Asset-Based, Residual, and Portfolio Income
Strategies to start with one income stream and build additional streams step by step
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The key to building the life you desire and deserve is to build your Money Machine—a powerful system designed to generate income that’s no longer tied to your work or efforts. This step-by-step guide goes beyond the general idea of personal finance and wealth creation and reveals the holistic approach to transforming your relationship with money to allow you to enjoy financial freedom and peace of mind.
Part money philosophy, part money mindset, part strategy, and part tactical action, these powerful frameworks will show you how to build your money machine.
Are you ready to finally understand how to build multiple streams of income and secure your financial future? Discover the secrets of diversification and leverage!
In today's episode, I dive deep into the necessity of having multiple streams of income and how it's more crucial than ever. I break down my five income framework, showing you how to move from active income to leveraging business, asset-based, residual, and portfolio income. Learn from my personal journey and see how creating various income streams can safeguard your financial stability, especially during life's unpredictable moments.
Want to create a money machine and achieve true financial freedom? Tune in to the full episode now!
IN TODAY’S EPISODE, I DISCUSS:
The importance of income diversification and reducing financial risk
The five income framework: Active, Business, Asset-Based, Residual, and Portfolio Income
Strategies to start with one income stream and build additional streams step by step
RECOMMENDED EPISODES FOR YOU
If you liked this episode, you'll love these ones:
The key to building the life you desire and deserve is to build your Money Machine—a powerful system designed to generate income that’s no longer tied to your work or efforts. This step-by-step guide goes beyond the general idea of personal finance and wealth creation and reveals the holistic approach to transforming your relationship with money to allow you to enjoy financial freedom and peace of mind.
Part money philosophy, part money mindset, part strategy, and part tactical action, these powerful frameworks will show you how to build your money machine.
This is the affluent entrepreneur show for entrepreneurs that want to operate at a high level and achieve financial liberation. I'm your host, Mel Abraham, and I'll be sharing with you what it takes to create success beyond wealth so you can have a richer, more fulfilling lifestyle. In this show, you'll learn how business and money intersect so you can scale your business, scale your money, and scale your life while creating a deeper impact and living with complete freedom. Because that's what it really means to be an absolute entrepreneur. Everyone's telling us you need to have multiple sources of income, multiple streams of income. If we are, if we're ever going to be wealthy, ever going to be free, ever going to be rich. You know what? They're right. All right. I actually think that multiple streams of income is no longer a luxury. It's a requirement. Think about it this way. We'll talk about how and what, but just think about it this way. When we talk about investing, we diversify a portfolio. In other words, we buy a bunch of different things. And the reason we use diversification is to reduce the risk of the portfolio in case one thing goes bad. So at the very beginning, when I'm working with clients or in my programs or even in my book, building your money machine, we talk about this idea of diversification. When I'm, you know, I act as a family CFO for a couple of families, and I take on some one on one elite clients. We talk about this. So you diversify your assets, your investments, and the reason you do it, it reduces risk. We don't really think the same about our income. And part of this is industrial age thinking, in the sense of what the industrial age thinking back in the day was. You go and work for a company and you work for that company for decades, your whole life. And at the end of that term, you get a pension, a lifetime of income to take care of you for your last days. Now, they've done away with the pensions because they got too expensive. We were living too long. But point being is that at that time, we were focused on one stream of income, one way of earning, one way of making money. But that becomes really risky if for some reason, the company decides to downsize. And now your only stream of income goes away, or you have a health issue and can no longer work, and one of your streams of income goes away, or something happens in a relationship or a family member gets ill and you need to go be the caretaker for a little while. So what we really need to think about is if we're going to diversify our investments. Why shouldn't we diversify our income at the same time? And that's really the part of the reason for having multiple streams of income. So you're not reliant on a single way of making money. Because if that single way of making money goes away for any reason, health, like I said, health, work, something, a pandemic legislation, I don't know what the reason is, but if something takes that income away, you're doomed. And so the idea is that when we have multiple streams of income, we have diversification. And if one income stream goes away, you still have the other ones to keep you rolling and keep you going. Now, there's another reason to have multiple streams of income, and that is the level of income. I think, that there's actually five incomes that we can talk about. This is the five income framework that I talk about in my, my book, building your money machine. But one of the reasons we have different streams of income, and you'll see with mine, how this, how this plays out is, is that the level of effort to generate the income is different. Now I get it. And I did a whole episode on this where people say, oh, passive income. Passive income, y'all. I don't believe in passive income. The idea behind passive income is that you set it and forget it, that you can turn your back on it. That once it's set, it's just coming in. And it's, it's a fallacy. It's a fallacy. Your, your money and your wealth, and you have a relationship. And just like any relationship, it needs nurturing. If I take a passive approach to my marriage, it would wither and die. When you take a passive approach to your income, to your investing, to your wealth, it will wither and die. Complacency is the first step to crisis, and passivity is the first step to complacency. And so I think it's important for us to look at it through those eyes. This is why I talk about it in this construct of the five incomes, and we'll work through it and look at it through the eyes of leverage. In other words, how much effort does it take for you to generate your income? For instance, you get a job, you go to work, you clock in, you clock out, you get paid, okay? The effort is a one on one relationship. The effort isn't leveraged. And it's just like me as a CPA. When I first started out, I was a CPA. I was selling hours. I had to be on the treadmill as I'm on the treadmill. As I'm running on the treadmill, I'm generating income because I got to sell the hours. Sell the hours. And the only way I could increase that income was to run faster, run longer, run harder on that treadmill, y'all. You know that you can't do that forever, that there's a ceiling on that. And so that's what I call active income. That's at the active income level of. Of the five incomes framework. So let's walk through it. What I'm really looking. Looking for you to understand is this idea of leverage and then break it down on how I navigated this versus. Versus the idea of passive. Okay? At the very beginning, you're going to have active income. That's your job. That's your one on one. That's your solopreneurship. That's the things that we all start out with. Then you go to level two. Level two is what I call business income. You're now getting a team in place. There's people doing some things for you, so it's not 100% reliant on you. So the level of leverage goes up, the level of effort by you goes down, the time goes down. Now, some people might argue, listen, managing a team can be worse than doing it yourself. I get it. You got to get the right team. All right? Business income. But then these next three is really where the leverage starts to really ramp up. Okay? The next three is where they ramp up, because the next one is asset based income. Okay. Asset based income is things like rental real estate. I put work in, I buy the place, I get it set up. Now, I have to manage it on a regular basis, but it is far less than going to a job every day or a solopreneurship every day. So what's happening is you're seeing that the level of effort to generate earnings is going down. Okay? Now, we go from asset based, and I go more detail in this, in the book and in some of my other trainings, is we go to residual based. Residual based is where you create it once and you get paid on it. A royalty, a licensing fee, something like that. My book, for instance, building your money machine. Okay? It's been. It's been created. It took all the work to create. It took all the work to get it. Get it out there. We get it out there. But now it's working for decades, and I get paid on it, a royalty. So, residual income is you create something, we get paid on it on an ongoing basis. It could be a downline in a network marketing or direct sellers type of organization. So that's the next piece where you put some upfront work. And then we get paid dividends over time. Okay. And then the last, the last level of this is the highest level. I call portfolio, portfolio income. And portfolio income is paper assets. This is buying stocks, integration funds, ETF's, annuities, trust deeds, things like that. Paper assets I invested. Now this is why I don't want this to be passive. You still have to check it. I still review all my investments in my portfolio on an ongoing basis. I look at my stuff more regularly than most because of what I do. But I'm looking at it monthly I have calls with my team. Quarterly I have meetings, face to face meetings, semiannually. We spend the time checking the pulse. So it's not passive at all. It is leveraged, but not passive. And the point is that I want to be able to create income streams at these different levels. And ultimately, ultimately, where I'm trying to get to, I want my income, my lifestyle at some point to be funded by those top three, because it is those top three that are the money machine. And when you do this correctly, those top three fund this. And now all the work that you're doing down here is optional. That's what we're trying to create. That's what we're trying to do. This is why multiple streams of income are so important. I'm going to give you a real life, for instance, for me. And then I'm going to break down how I got here to hopefully show you. But when I got diagnosed with cancer, when I got diagnosed with cancer, all of our life was being paid for by the bottom two, active and business. All of our life was being paid for here. Okay, but I know it's getting messy, but, but I was generating income at all levels. I have income from all of these. What was happening with these? All of the income from the top three before I got diagnosed was going back in to build it bigger and bigger and bigger, to build the machine bigger. But once I got diagnosed and I knew I had to fight for my life, I simply went to my team, I said, hey, have that income come to me so we can live. I'm going to shut this down and I'm no longer. All my effort, all my time, all my effort went to healing and fighting the cancer, not generating the income, because I had a machine that was generating income. This is the power of multiple streams of income done the right way. So how did I get here. And how can you get yourself to a point of multiple streams of income? First things first. There is one thing that I want you to do above all is first, start with one. Okay, so step one, start with one. The mistake is to sit back and try to develop multiple streams of income at one time because you can't give any one of them enough effort, enough focus to get it going at a critical level of momentum. So what we want to do is start with one, and most of us are going to start at that bottom at active income and say it's earned income. I did okay. I'm a CPA by education. I was generating income by selling my hours. I knew that I couldn't do that for long. I couldn't do that the rest of my life. I was capped out. I couldn't build wealth, but I had to get that because that became the foundation of cash flow, the foundation of work. I started, this is my journey, and it doesn't need to be your journey, but I started here doing valuations. So I was selling hours for dollars and I was making money. I developed a skill set, I developed an expertise, I developed a positioning, I developed a distinction, and I got paid for the distinction, and I did whatever I could to increase my value in the marketplace, to get paid as well as I could in that space because that gave me the latitude to build from there. Now, here's the interesting thing. In order to build that business, no one wanted to hire me because they said, you don't have any experience. Well, I go, hey, wait a second. If you don't hire me, I can't get the experience. Hire me, I'll get the experience. But they wouldn't do it. So what did I do? Now we're going back away. This is like 1990. Okay, so a few decades. And I said, so I said, the best way for them to see how good I am is to go out and speak. So I literally just went out and started speaking for free. I wasn't making money at it because I had no idea. So I was speaking for free. I was writing for free because I wanted them to hire me for the gig, the valuation. So what happened was I started speaking, I started to get work. My business started to grow. I started to get a reputation. I started to increase my fees, increase my fees, more reputation. Distinction created basically an international practice. Okay? Certainly national recognized expert in the valuation field. But then what happened was I'm sitting back saying, still I'm selling hours for dollars. And someone came to me and said, hey, pretty good at this speaking thing, I said, yeah. He says, do you know that you could make money speaking? And I go, what? I had no idea there was a speaking industry. I said, in school, I used to get in trouble for talking in class. You're telling me that now for talking, I can get paid? And they said, yeah. So what ended up happening is I started research, and I went to the National Speakers Association. I started to understand, and I go, so this led to me getting paid for speaking. Today I make $20 to $30,000 a keynote for speaking. Okay. The people bring me in, but it. It led to this. So I have. Now I have a category of income that's speaking. But when I first started speaking, that was. That was great. Now I'm getting paid, but I still had to get on a plane, I had to travel. I had to do this. We didn't have the virtual stuff back then, but so what did that lead to? It led to courses. So then I started to create courses that I could sell for 97 to 1997 and $2,000 that started to leverage my content and leverage me and leverage my knowledge. But remember, it started with one thing. Got that cash flowing, got the speaking cash flowing. Now I get the courses cash flowing, but I'm just stacking them up. Then the interesting thing, and another interesting thing that came out of it was, was then one of my clients asked me if I would be willing to join their board of directors. And that created another arm of my practice or my business, where I sit as an outside director on companies to build companies. This one of the companies we built from 25 million to 350 million in revenues. But I sit on boards of directors as an outside director consultant, getting paid for that. I go to four physical meetings a year. We do some phone calls throughout the year, but again, it's leveraged. It's not dollar for an hour. Now I have board income that's coming in. Then from this, I wanted to impact people more. This led to my elite one on one clients that I take on, where I act as a family CFO and my master's clients, which is my group coaching, group coaching program. Okay. Where we're doing one call, two calls, maybe a month. Again, more leverage. But I'm getting paid on a regular basis, which then led to me supporting a couple of my friends and complimentary pillars to make some affiliate income. Now, this isn't, isn't huge, but it can be huge if we do that. All right, so all of these things were my journey, where I had all these different income streams so when things would happen, if I needed to stop one of them, I didn't lose all my income. But here's the other side of this. While I was doing that, I was also taking the cash and the income and starting to build a portfolio of assets, residual and portfolio. So the first thing that I was doing well, two things that I did was real estate. Now, I didn't go out and buy a bunch of real estate. What we did is I lived in it. It was a residence. And then when I left to get a new, new home, I just converted it into a rental. So a lot of my rental real estate were prior residences. I don't own a ton of physical real estate directly because I just don't want to be the landlord. I don't want to deal with the hassles, and I don't want to deal with management companies and management. But I do own access to real estate through other investment types of vehicles, like syndications and partnerships and things like that, where someone else is dealing with a headache, I'll give them a piece of the return to do it and, and do that. But in the meantime, I had the real estate, and then I followed what I teach, which is the wealth priority ladder, which tells me, how do you start to build your income? Investing through my 401K, investing into iras and Roth IRAs, and making sure that I'm maximizing the stuff. And through that is, then I created, I had my, I have my, my retirement accounts. Now, for those of you that want to know the details, I currently have a defined benefit plan, I have a profit sharing plan, and I have a rolled out IRA. And, and so I'm funding all, all of those on a regular basis. Now, these are primarily invested in ETF's and index funds. Okay. There's some other investments in there. And, and then I have my additional investing in my regular brokerage accounts, again, ETf's index. So I'm using the cash flow by following the wealth priority ladder and the rules that I set forth to take that piece off of it and to build the money machine at the portfolio level, because all of this stuff is portfolio income at the portfolio level. So why does this matter? Watch what happens in the end. I have income that is coming in, that is leveraged. My dividend and interest income alone for last year was multiple six figures. Dividend, interest income alone. And I'm not using it to live. We're using it to continue to build the machine, because right now I'm still earning my income from the work that I do my board work and speaking and stuff. That and my wife's work. That's paying our lifestyle right now, but we could pay for it from the machine. But right now, since we don't need it, we allow it to continue to grow. That's the beauty of having multiple streams of income, is you can take and say these two streams of income, my, my earned income, that's going to pay for our lifestyle today and everything else is going to continue to roll in and grow. So it'll pay for our lifestyle tomorrow. That's the beautiful thing. So today I get paid for coaching and mentoring. Today I get paid for speaking. I get paid to be on boards. I have courses and programs. I have my books. I have affiliate income. I have stock investing because I do other trading and stuff with stocks, which I don't teach because it's more complicated, way more risky, dealing with options and things like that. I have dividends and interest, which we just reinvest. We don't spend right now. And I have rents from the rental properties. So you see that by the time you build this, you get yourself to a place where you have multiple streams of income that can take care of you in multiple ways. Now. Sounds like a lot, y'all. Let me be straight. I'm 62, going to be 63. I didn't start here what I said, I started with one. I got it running. I earned income, and I looked at it and said, how do I navigate that? How do I take a piece of that and start to build the other leveraged income stream using my expertise? How do I get more income? So that's where I got to the speaking and the boards and some of the other stuff. So here's the first thing for you to do is to understand the five levels, the five incomes, and know that at some point you want to get there where you have income from all the levels and that you want to be in a position where the top three asset residual and, and portfolio can support your lifestyle at some point. Okay, maybe not today. That's okay. Start with one and continue to build one step at a time. Get the first one rolling, then move to the second one while the first, keeping the first one working, get the second one rolling. Then when the second one gets critical momentum, move to the third one, then the fourth one. Don't try to do them all at once. None of them will do well because you just don't have the bandwidth, you don't have the resources, you don't have the focal power. You just can't do it. Start with where you're at, where are your strengths? Monetize that. Maximize your value, get paid your worth, own your value, and then use that as the stepping stone on the springboard to start stacking more multiple streams of income. Because when you diversify your income streams, you reduce your risk. When you leverage your income streams, you get your time back, your life back by the moments of your life, and you now control. I do believe that our wealth should be measured in time and not dollars. And so I want to be able to talk to you and say, how much of your time do you control? And you say, 100%. That's freedom. All right? And that's what I want for all of you. So, as you know, I am on a crusade to light the path to financial freedom for a million families. And I want you on that journey with me. Right. I hope that this helps. I hope this gives a perspective and maybe a pathway to get you there. One step at a time, but know that it's coming, all right? Until I get a chance to see you in another episode or on my journey out there speaking, always, always strive to live a life. Thank you for listening to the affluent entrepreneurship with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to melabraham.com group, and I'll see you there.
