“Never depend on single income. Make investment to create a second source.”
This is a quote from billionaire Warren Buffett. Based on his ability to build wealth, I pay close attention to anything that he says on the matter. For several months, I have been brainstorming the best way to generate a second source of income. I’ve come up with a few ideas.
Stocks/Mutual Funds/etc. – Having money invested in accounts where interest and dividends are generated is a great option for anyone who wants an almost completely passive source of income. Your balance builds over time, and the compound interest creates that beautiful monetary snowball. The problem with this, I think primarily for those who are just setting out to build wealth, is that you need extra money each month in order to invest. It’s almost a chicken-and-egg scenario; I want extra money each month to build wealth, so I will begin by investing extra money into accounts to begin generating extra money. In my situation, I’m not sure it’s the best place to start.
Real estate – I have also tossed around the idea of buying an investment property. My ideal scenario would be for my wife and myself to move into a small condo or house in about a year, live in it for a while, and then move to something else and rent the home out. This would generate monthly income from the rent as a source of money. I think this is a great idea, but the scary part for me is not having a large enough down payment to immediately have equity in the property. Again, to build up a down payment would take quite a while based on my current income, so it’s not really the option that will generate an immediate result.
Start a business – Fairly self explanatory; find something that has a low barrier of entry and use it on the side as a way to generate extra money. The business gains value over time, and you can either keep it as income or sell it for profit to another investor or entrepreneur. A good idea, it’s just a matter of having the gumption to get something started and build it from the ground up.
Second job – This, for many could be the easiest to enter into. Find a place that could use help during hours that you are free from your main source of employment. Use the paycheck to pay down debt or stash away in investment accounts or savings for a down payment on real estate. It’s just a matter of accepting that you are submitting yourself to the whims of yet another employer.
I haven’t figured out what the right answer is for me yet; I feel like it might be a combination of some of the above, I just need to decide where to start. I have toyed with the idea of maintaining my current employment (I work retail in the electronics/telecom industry) and then getting licensed as real estate agent and transitioning towards something like that; with a bit more flexibility and autonomy, and hopefully less of an income ceiling. Then I can use the extra cash to more quickly build reserves to buy real estate or stocks/mutual funds.
What about you? If you have a second source of income, what advice do you have to those looking to find one as a wealth building tool? If you don’t have a second income yet, what ideas have you tossed around, if any? Let us know in the comments!