The wise investors will tell you that the best strategy is a diverse one, but what exactly does that mean? The simple answer is ‘do not put all your eggs in one basket’.
However we all know that the big shiny new thing is going to appeal to our sense of greed by offering a little more than the others offer, to entice you to join that investment platform.
So what should your ultimate strategy be?
7 STREAMS OF INCOME
Let’s look at a practical example in real life …
Income Stream 1 : Income from your work, the job that pays you every day – Hopefully you can make enough extra to save. If you don’t have enough to save you are probably spending too much (usually too much on credit – buying things you don’t need, with money you don’t have, to impress people you don’t like). So look carefully at how you spend your hard earned money, and try to save at least 25%. It sounds like a lot but it can be done if you get rid of the idea that you need credit.
Income Stream 2 : Income from assets, do you have property that you own that provides you with a monthly income? Property you live in is not an asset, it is a liability regardless of whether you own it or not. If something is not making you money, it is a liability.
Income Stream 3 : Income from savings and other investments that give you a small but secure interest rate of around 5 – 10% annually. Remember that you need to save at least 10%. However, to achieve some kind of wealth, you need to save around 25% of your monthly income and this will normally result in the need to find more income streams to supplement your existing income.
Income Stream 4 : Additional jobs or income from part time opportunities. Finding an extra job that is worth your time is often the challenge, but in some cases the extra bit goes a long way to adding to your savings. What is that hobby you have? Can it be turned into an income stream? Visit local markets and see what other people are selling and that may give you some inspiration of what you can do.
That is four different income streams and those are the more obvious ones, but how do you achieve 7 different income streams? Well for starters you will need to split some of your savings and income, and diversify even more. This process is called delayed gratification and most of us have lived in the ‘instant gratification’ environment for too long. The essence is simplification – how can we live with less now so that we can have more later, instead of the reality of credit which guarantees you have more now, so that you can have a lot less later. Think about what you are actually doing, instead of what the temporary feel good factor gives you.
Income Stream 5 : Pay off the credit, yes this will create an extra income stream within a few months. Once you have paid this off, do not take more credit, ever again.
Income Stream 6 : Create an extra 5% from your current income by spending less. Simplifying your lifestyle is the greatest way to save. Start by deciding what is really important to you. Take an example of clothes, most of us have too many. Decide what you need and wear those clothes, and avoid sales as you usually buy things you don’t really need. Soon you will find yourself budgeting for the things you really want and finding them at a good price. You can apply this to any area of your lifestyle when you think about it.
Now that we have created some extra cash in your life, how are we going to create the 7th stream of income? And the challenge is to actually have 7 or more streams of the 7th stream of income.
Income Stream 7 : Your 7th stream of income is made up of investments ranging from the low risk to high risk investments. The first step is to get advice and do your due diligence. Be careful, remember those giving you advice are often biased towards whatever investment they are offering, so listen more to that than the actual advice.
Low-Risk would typically give you a return similar to savings and are normally secured by the financial regulators.
Medium-Risk are investments that give a reasonable return but have an element of risk like shares on the stock exchange and gold.
High-Risk – like starting a business which requires considerable capital, or online investments. Both offer high returns but have a huge element of risk due to lack of track record and market fluctuations. One day you are making good money, and the next day everything has changed due to a change in the markets. This is why it is important to spread your risk and not put all your eggs in one basket. Diversify over different industries so that you can potentially earn on one market whilst the other is down and vice versa.
When you earn from these investments, it is important to apply the same rules as in the first few streams of income – save and simplify so that you can become financially free. This is the only way to create wealth, and in time the delayed gratification will turn into real gratification for you and your loved ones.
Stay wise and remember without some form of risk there is no reward.