How Many Income Streams Do You Really Need?

In personal finance, we often talk about side hustles and multiple income streams. The extra money that we make from a side hustle can come in handy for a variety of purposes like making a down payment for a house, or paying off debt, or to build an emergency fund.

In this way, having multiple streams of income can help you mitigate risk and keep you financially secure at all times.

But what do we exactly mean by a stream of income and how many streams of income should we ideally have? Let’s try to decode it.

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What is an Income Stream?

Let's first understand what do we mean by the term 'income stream':

An income stream can be defined as a unique source of income which is reliable and can help cover your monthly living expenses.

So if you need Rs 30,000 to cover all your monthly expenses, then a side job that pays Rs 5,000 cannot be counted as a reliable source of income. But if the same side job paid you Rs 30,000 consistently then that can become an additional income stream for you.

Think of an income stream as a protective shield to protect your emergency savings even if you lose your day job.

We are often advised to create an emergency fund, with at least 3–6 months' worth of living expenses so that we are prepared for unforeseen situations. But if your additional income stream could cover your monthly living expenses, then you wouldn't have to touch your emergency fund, even if you lost your day job.

So having two solid streams of income i.e. your regular day job and an additional income stream can act as a great financial defense for you.

Also read: 10 Best Side Hustles You Can Start Earning With Now

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Ideal Number of Income Streams?

There is no magic number for how many income streams you must ideally have.

But having two reliable income streams can be a good starting point for you:
1. Your regular 9-5 day job
2. Your side job

Gradually you can get to a point where these two income streams can pave the way for a third passive stream of income - income from investments.

A passive income stream is one which requires almost no effort from your end. For example, rent from a property, dividend payments from your investments or any other enterprise where you are not an active participant.

Building a passive income stream is difficult initially and takes time. So the more you maximize your savings, the sooner you can build a passive income stream. And this is exactly where an additional income stream comes in handy. If your living expenses are covered by one stream of income, then you can save up all of the income earned from your additional job. This way you can maximise your savings in a faster and easier manner.

Tip: Try to keep your living expenses constant and always be on a lookout to increase the number of your income streams. This way you will be able to invest enough money relative to your living expenses.

Yes, your investments will only bear fruit if they are done in the right proportions with respect to your living expenses.

For example, an investment of Rs 1,00,000 can help you build a passive income stream if your living expenses are constant at Rs 30,000. But the same investment can seem insignificant if your living expenses rise to Rs 60,000. So it is essential that you don't increase your living expenses because of your two income streams. And once your passive income starts covering your living expenses, you could also decide to drop one of the other two income streams.

Also read: 5 Side Hustles That Can Make You Money on the Side

So Just Two Streams of Income?

Well, that depends entirely on you. If you feel you can manage your regular day job, a side hustle and an additional job or project, then by all means go ahead. These days, you have a variety of options to choose from: affiliate marketing, online courses, podcast, newsletters, photography etc. After all, more work means more pay and more pay means more savings!

But if you feel you are spreading yourself too thin, and unable to enjoy any of your jobs, then it is best that you try to sustain two streams of income first. And pick up a third one only if you feel like it.

And like we explained earlier, once you have built a passive income stream, you can either choose to keep both of your active income streams or drop one.

Remember, it is easy to work for money but difficult to make money work for you. So make smarter financial decisions so that your money starts working for you while you work on things that you really enjoy.

(Check out 'Learn & Grow with Wizely' to read and learn all about personal finance and financial planning.)

Asha Ritu

Asha Ritu