Throughout the Money Boost – Make Extra Money website we have published many posts now with the aim of helping you boost your money and earn an extra income through different techniques and methods.
We hope you’re well on your way, but you don’t have to choose just one method. The best ways of creative a true passive income is to create a number of passive income streams but let’s walk through step by step.
What is a Passive Income Stream?
So, what do we mean by passive income streams:
Passive income streams is the method of combining multiple passive income methods together in order to safeguard your income and create a bigger passive income return
Let’s breakdown this down a little. Suppose we had a passive income through an Airbnb rental, and that this passive income stream generated us around £1,000 per month – which is a great start on the passive income route.
Now we have various options with this £1,000 income. We could spend it, and use the money to pay bills, clear debt or even go on holiday. If you have bills and debt of course these should be paid off first, no question.
You could though decide rather than buying more stuff, that you invest this money. Invest in more passive income streams to make even more money!
Multiple Passive Income Streams
This is where the fun part starts. By investing your passive income in more assets to build more passive income you essentially are ‘doubling up’ and this is where your passive income return begins to compound and really pay dividends.
Let’s say with your £1,000 per month passive income you choose to invest in stocks and shares, and open a Stocks and Shares ISA. You invest £1,000 per month on a portfolio that, for example, sees a 7% return on investment per annum (remember though stocks and shares although are an investment, there is risk and you may end up with less than your original investment).
By the end of the first year your original £12,000 from your Airbnb rental is now £12,380.30. This is based on you adding £1,000 per month into your Stocks and Shares ISA which earns 7% per annum.
Year one you see a small additional income of £380.30, but year 2 is where income and interest start compounding.
If you keep your £12,380.30 and continue to add your £1,200 per month Airbnb rental to your Stocks and Shares ISA, by the end of year two you would have £25,626.90.
If you just had your Airbnb rental, after two year this would be worth £24,000 – but by investing your passive income stream into another passive income stream you’ve just earned an additional £1,626.90 for no extra work!
And lastly, just to show how this really starts paying off – at the end of year three if you continue adding to your Stocks and Shares ISA at £1,000 per month, your £36,000 Airbnb rental income would be worth £39,800.12 – an extra £3,800.12 more.
Do I already need a passive income to start more passive income streams?
You may be just starting your passive income journey and don’t currently have a passive income stream. Having an existing passive income doesn’t prevent you from having multiple passive income streams.
For example, you could start building and writing a money-making blog, whilst also creating a YouTube channel. Both methods are pretty low cost, and if successful would provide you with two passive income streams.
You don’t have to stop there. Many entrepreneurs who have mastered the art of passive income generation have 7 or more passive income streams.
You can create as many as you want, or time allows.
What are the benefits of multiple passive income streams?
There are a couple of reasons why it may benefit you to have multiple passive income streams.
The first is to diversify your income methods so you don’t have everything riding on one stream. For example, writing a blog is a great way of creating an extra passive income. You could find that your blog goes viral, Google boosts you to the top of the it’s search engine listings and you’re generating a really good income.
What happens though if a Google algorithm means your blog drops in ranking. Not as many people visit and your income starts diminishing. If you rely solely on your blog, and this stream breaks, you have nothing to fall back on.
This is why people talking about diversify a stocks and shares portfolio. If a company has a bad year, or profit warnings, and you had all your investment to this one company, you could find 30% of your investment is lost overnight.
Diversifying your investment is really just spreading your investment around to manage risk, so you don’t have all your eggs in one basket. The same principle can apply to passive income streams.
I hope this has whet your appetite, and you now want to get started creating your own passive income streams.
For some ideas and inspiration to get started, check out our 14 Passive Income Ideas in the UK post for lost of great ways to get started today!