In today’s world of uncertainty a secondary income is definitely a necessity that could come to anyone’s rescue during period of emergency or to take care of future financial needs. The most attractive proposition is the ability to atleast get closer to the ambition of being “financially free” at some point of time.
Most people aspire for financial freedom at a much younger age rather than waiting for their retirement. To achieve financial freedom much earlier before retirement, you have to develop two or more streams of secondary income in addition to one’s salary (or other primary source of income).
Identifying Avenues for Secondary Income
This is easier said than done because the avenues open to you depends on your skills, interests and opportunities available to you in the market.
So there is no standard formula or checklist I can give that can suit everyone. However, if we look at what avenues are available and how people have tapped them we can get good ideas and inspirations for ourselves.
For instance, Harish ,a software engineer by profession was an expert in developing software and debugging code. Further, he also had some additional web development skills developed as a professional hobby.
He developed a successful secondary profession in web designing, which gave him the satisfaction of pursing his passion in addition to generate additional source of income.
Avenues to explore
Some of the avenues you can tap in to for secondary source of income include: -
1. Freelancing (Web based)
There are numerous opportunities to work as a freelancer on the web. This is not for starters but for people who have some work experience in real world who want to start working on the web part time. Over a period of time you can decide to get in to this full time. You could have the flexibility of working from home through a home office. The investment and set up required would be a good personal computer with all the necessary software, applications and broadband internet access.
The only requirement is to have good skills in the area you work on. You can become a writer, blogger, SEO Expert, affiliate marketer, etc. Technical skills can be important for certain roles, while basic computer skills and language skills would suffice for writers and bloggers.
This is similar to the above option, but this can extend to work in the brick and mortar world too. For example if you have expertise in providing financial advice you could become a Personal Financial Planner or Advisor. This is a simple example. If you look around your neighborhood or classifieds you will find a number of accountants, tax advisors, lawyers, doctors, who have their own practice. The office could be set up in separate premises or at home.
The only catch here is you need to be a reputed expert in whatever you offer and have credentials to prove your abilities. This may not be suited for everyone, but having this option open can help you set up a consulting practice over time.
All these words sound similar, but I’m using them to show the variety of opportunities for those with an inclination to teach. Becoming a teacher in college or school would be a full time option, which cannot be a secondary role. However you could work with educational institutions as a visiting faculty or as a guest faculty. Secondly, you could start a training/coaching center providing coaching for school or college students or for specific exam preparations (IAS, GMAT, IIT JEE, etc.).
Personal tutoring or coaching at home is another option which does not require infrastructure. You could also work for a training institution as a visiting faculty or as a consultant.
4. Property Investment
Whether you buy a property for self-occupation or for investment (i.e. renting out), the investment will appreciate in value overtime, and you will get rental income (or rental savings) every month for a long time. Everyone should have atleast one property to provide a shelter or roof over their head, which is more important for middle-aged people and those closer to retirement.
People who bought a house in mid 20’s are enjoying the benefits of their investment as they get closer to becoming 30 year olds. Like any other investment starting early pays off well in future, but given the large sum of investment involved one has to plan carefully and take a decision.
If one has the money and ability to manage a property there is a good potential to earn a residual income or passive income for the rest of your life.
Assume Mr.Vipul buys a property which costs Rs.22 lakhs and generates rental income of Rs.7,000 per month, while his home loan payment is about Rs.21,000 per month, while his monthly salary is Rs.35000. See the illustration below to understand how his cash flow improves over the years.
|Time||Property Value||Monthly Rental Income||Home Loan EMI||Cashflow||Salary Income||Cash Flow/Income|
|After 3 years||2450000||9000||23000||-14000||45000||31%|
|After 5 years||2800000||12000||22000||-10000||52000||19%|
|After 10 years||3500000||17000||22500||-5500||70000||8%|
With passage of time rental incomes become significant enough to cover a major part of Vipul’s EMIs. This means he can make someone (tenant) pay his mortgage over time. In many cases within 10 years the property’s rents and EMIs would be equivalent, but I’ve shown a more conservative example, where the salary income has doubled in 10 years.
This is a typical normal scenario where you don’t prepay your loan, but just continue servicing your loan installments. Keep watching this space as we come up with more information on property investing.
5. Investment in Equities & Fixed Income avenues
Equity investment should start as early as when you get your first job and needs to be done systematically through systematic investment plans. For people who don’t want to be managing multiple funds I would recommend investing via ETF.
Investing in Nifty ETF is one of the smartest strategies provided you have moderate risk and return expectations and like to invest for medium to long term. For the most savvy investors who like to dabble in stocks there are plenty of strong, reputed companies in the index that one can choose from. However, I am not recommending trading stocks – be it intra day trading or positional trading.
Many people borrow to trade or invest in IPOs which is similar to a time bomb waiting to blow up. Trading and leverage are not recommended for investors, however knowledgeable you may be. The only exception if where you have prior knowledge and experience and like to set up your own trading business.
Fixed income is a very good avenue during time when interest rates are high. This is a good option only for people with sizable investments and cash flows.
For people with a small saving this can be a short term parking place if you are not sure of where to invest. For those with huge savings running in to several lakhs investing in a fixed deposit can provide good returns (around 10% p.a) in current times. However, since interest income is taxable the post tax returns can be less. Moreover, fixed income is not good enough to beat inflation.
6. Starting a Business
This may not be your cup of tea, but no harm trying if you have a strong conviction in your product offering and its marketability. If one of you family members is in to business you can join the same. Else you could take their advise and assistance to set up your business.
However, for those who are uninitiated you need to tie up with the right kind of partners or professionals so that you can get funding, launch your products, manage staff, etc. The risks are high in this option but it can be rewarding once your products or services become popular and generate good revenues and profits. Let me clarify that the line of business can be anything ranging from selling vada pavs to setting up a branded retail outlet.
Robert Kiyosaki of Rich Dad Poor Dad series stresses the fact that one can start any business without being concerned if the idea is new, different or unique. We all read about new ideas, unique business models, etc which can differentiate you.
However, traditional and mundane business models work too – why do you think people still go to kirana stores, local markets, tailors, mechanics, etc. There are certain needs and solutions that people want that businesses provide.
7 . Arts (Music, Dance, Film, etc.)
You can become a professional in these areas if you have the right talents. For instance Mr.Ranjit, who works for a leading bank also learnt to play the guitar during his free time and on weekends. With a couple of years he became a bass guitarist and is in demand for conerts, parties, events, etc. This is a case where a hobby becomes a secondary source of income. Similarly if you are a part of a dance troop or a theatre group in you city you may be able to generate a small income from your performances.
8. Other Vocational Careers (Tailoring, Servicing electronic gadgets, Computer servicing, etc.)
This may sound like a bad choice for some people, but these services are in high demand in all seasons. People still go to a tailor despite the fact that ready to wear clothes are produced in large quantities and bought in stores. Similarly, we see a lot of technicians who specialize in fixing television sets, refrigerators, washing machines, etc.
Similarly there are specialists who fix cars, air conditioners, elevators, computers, electrical fittings, etc. You could provide these services on a regular contract (like annual maintenance contract) or get paid for ad-hoc services offered as per requirement. Many people who work full time in certain technical jobs also provide services independently as well.
For instance an electronic specialist working for a refrigeration company could also be providing private services for repairing refrigerators, ACs, TVs assuming he is experiences in all these areas.
We have seen some key ways to generate secondary income from various source, however this is just the tip of the iceberg. If you explore further you will find a dozen more options. It is very important to keep yourself updated on what is happening around you.
All said and done the process of finding income opportunities can be overwhelming at first, and you could face continued failures. But take this positively as a learning process and proceed further by exploring alternate opportunities. Once you have established additional sources of income, these can become residual incomes in addition to your primary income source.
At this stage you will have the option to choose to work for yourself at your own pace and comfort and become financially free.
It may take several years to reach this stage, so get started right away, so that you can explore many options and choose the ones that are suited to your needs. You have to start somewhere to reach your goals, so it does not matter whether you make $100 a month or $10/hour.
Initially the rewards may not be forthcoming, but once you establish yourself the fruits of your efforts will pay off. Let me quote Confucius who said “A journey of a thousand miles begins with a single step”.