Greetings, and welcome to the sixth edition of Wallet Wellness in 2024 - your midweek source of practical financial tips to elevate your money management skills!

Today, we are looking at seven ways to diversify your sources of income and stand a better chance at beating the uncertainties of the economy.

And since it’s Valentine’s Day, we went way ahead of you last week with a deep dive into 5 Money Rules for Healthy Romantic Relationships. 

As always, be sure to check out the Concept Corner below for a deep dive into the money concept of the week.

Let’s dive in!

MONEY254 TIP OF THE WEEK

7 Ideas to Create Multiple Sources of Income

In today's world, relying solely on a single source of income can be risky. With the rising cost of living, job uncertainty, and tough business environment in Kenya, diversifying your income streams is more crucial than ever. 

But fear not, diversification doesn't necessarily require a complete overhaul of your life; it's about exploring new ways of earning an income in addition to what you are already good at without unnecessarily disrupting your current lifestyle.

That’s why today we are discussing the 7 types of income streams to help you visualise your options. A five-year study by Tom Corley shows that 65% of dollar millionaires have at least three streams of income. 

So, you may only need to build just about three types!

1. Earned Income

Earned income is what you receive in exchange for the work or services you provide. Examples include salaries, wages, commissions and bonuses. Read More.

• Start a side hustle: Utilise your skills or hobbies to generate additional income.

• Freelancing opportunities: Explore platforms like Upwork or Fiverr to offer your services to clients across the world.

• Upskill for promotion: Invest in learning new skills to advance in your current job or seek higher-paying positions. Read More.

• Pros: Easier to obtain. Reliable.

• Cons: Limited by time. Doesn’t scale. Can be risky as an only source of income.

2. Profit Income

Profit income is earned by selling goods or services for more than the cost of production. It includes business profits and entrepreneurship.

• Start a small business: Identify a niche market and launch a venture with low initial investment.

• E-commerce: Sell products online through platforms like Jumia, Kilimall, Jiji, Sky Garden or on social media such as the Facebook Marketplace.

• Affiliate marketing: Promote products or services and earn a commission for every sale made through your referral.

• Pros: Income is scalable (especially if the business is online), can become passive income.

• Cons: Requires significant work, capital, or both. Can take several months or even years before you see results.

3. Interest Income

Interest income is earned by lending money or depositing funds in interest-bearing accounts. Examples include savings accounts, fixed deposits, Sacco deposits, corporate bonds, treasury bills and bonds, and money market funds.

• Above-inflation returns: Research and open accounts with competitive interest rates that can hedge against inflation. 

• Passive Income: You can structure your payment intervals, for example bond maturities or fixed deposit payouts, to pay you regular sums throughout the year.

• Predictability: Diversify your portfolio with bonds offering fixed interest payments.

• Pros: Passive, consistent and predictable.

• Cons: Requires capital. Lower returns relative to other income sources.

4. Dividend Income

Dividend income is earned by owning shares of stock in companies, including Saccos and Real Estate Income Trusts (REITs) that distribute a portion of their profits to shareholders.

• Dividend-paying stocks: Invest in stable companies with a history of regular dividend payments.

• Consider reinvestment: Reinvest dividends to purchase additional shares and compound returns. Read More.

• Dividend ETFs: Diversify risk by investing in exchange-traded funds focused on dividend-paying stocks.

• Pros: Passive, and relatively stable. Can earn capital gains. Read More.

• Cons: Requires capital. Income is not guaranteed.

NOTE: Interest income is more reliable but less profitable while dividend income is riskier but has potential to be more profitable.

5. Rental Income

Rental income is generated by leasing out property or assets to tenants. Examples include real estate rentals and equipment leasing.

• Location and funding: carefully consider where you are purchasing real estate as it will directly impact income. Consider funding models that lower upfront costs and maximise returns.

• Short stays: While short-stay rentals such as via Airbnb are running into some headwinds recently, they can be lucrative if done correctly.

• Equipment leasing: Lease out equipment such as cameras, power tools, vehicles or machinery to businesses in need.

• Pros: Potential to be somewhat or fully passive. 

• Cons: Requires generally high upfront capital and some expertise. Dealing with tenants can be a hassle. Read More.

6. Capital Gains Income

Capital gains income is earned by selling assets or investments at a higher price than the purchase price. Examples include stocks and bonds or other property such as real estate, vehicles, or boats and collectibles. Read More.

• Stock investments: Buy undervalued stocks and sell when their prices appreciate.

• Real estate flipping: Purchase properties below market value, renovate, and sell for a profit.

• Collectibles trading: Invest in art, antiques, or rare items and sell them when their value increases.

• Pros: Passive. 

• Cons: Can disappear quickly. Not as reliable. Requires capital. Read More.

NOTE: You need to sell the asset in order to collect the capital gains income as compared to rental income where you still own the asset. Bear in mind capital losses can happen too! Meaning capital gains should not ideally be relied on as a long-term income source. Read More.

7. Royalty Income

Royalty income is earned by licensing or selling the rights to intellectual property, such as patents, copyrights, or trademarks. If you have an creative talent such as in graphic design, music, writing or photography, this can be a lucrative income stream for you: 

• Create digital products: Develop e-books, online courses, or software and earn royalties from sales.

• Licensing agreements: Licence your creative work, such as music or artwork, for use in various media.

• Affiliate programs: Join affiliate programs and earn commissions by promoting products or services.

• Pros: Passive. High potential to scale income.

• Cons: Product needs to have high demand. Return on time, effort and investment is not guaranteed. Read More.

Diversifying your income streams not only provides financial security but also offers opportunities for growth and wealth accumulation.

In today's unpredictable Kenyan economy, having multiple sources of income is not just a luxury but a necessity for ensuring financial stability and resilience against economic uncertainties.

So, seize the opportunity to explore and build diverse income streams tailored to your skills, resources, and goals.

CONCEPT CORNER

Income Diversification

Overreliance on one income stream is risky. Diversification into more sources of income spreads the risk and improves stability. If you have multiple streams, you have more flexibility to pursue diverse interests. In this article, we dive deep into the reasons why income diversification is essential in today’s world. Read More.

Money and Me

A Letter to My 18-Year-Old Self

If you were given the chance to speak to the 18-year-old version of yourself through a letter, what would you say? In this article, Eddy reflects on the financial lessons life has taught him over a decade since he turned 18. Read on.

MONEY254 #MONEYTOK

Are Kenyans Saving Any Money in This Economy?

Times are tough for most Kenyans due to the high cost of living. While the ability to save is impacted, the need to put some money away for the future is even more necessary. In today’s #Moneytok, we talked to a few colleagues on how their savings journey is going so far. Watch Video. 

@money254hq

Part 1: Are Kenyans Saving in This Economy? #money254 #fyp #moneytok #savings #investment #moneychronicles

That's it for the sixth Wallet Wellness edition of 2024! We hope these financial tips have added some energy to your mid-week hustle. Stay tuned for more practical insights in our next edition of "Wallet Wellness" next week and watch out for Money Weekly on your inbox this Friday.

Also, don’t forget to download the Money254 App on the Google Play Store, and remember that we can help you compare over 300 loans, savings accounts, current accounts, and more if you’re thinking about your next product.

Cheers to your wallet's well-being!

Eric and the Money254 editorial team.