One thing that I have found most common among wealthy individuals is the ability to have and maintain alternate sources of income. Most people concentrate on their primary source of income and that is it. For one reason or another, many people tend to not develop alternate sources of income. Perhaps it is due to time, laziness, lack of desire, or just knowledge. Fact is, if you can find alternate sources of revenue, you become less dependent on your primary source and build wealth.

Before you begin here are a few things to know. There are two kinds of alternate sources that can generate extra income:

Passive Income: This is the best kind. Once you set this income stream up, it takes little work and continues to produce income. Example of passive income would be interest from a savings account, rental properties, or dividends from investments.

Active Income: This requires consistent participation to continue the income stream. This could be a home-based business, selling things on ebay, or consulting.

The secret is to develop as many passive income streams as possible. That off course is easier said than done, but lets take a look at a few things that you could do.

Cd’s, Bonds, and Savings: These are typically very safe investments and can generate anywhere between 2-6%. Not going to make you rich, but a little extra money each month into these types of investments does earn you income and helps increase you total savings.

Mutual Funds: These come with a bit more risk, but they can typically yield a lot better than 6%. A great source to see Mutual Fund ratings is Morning Star or check out Forbes fund guide 2007. They have a great rating system and have further information on the types of funds out there.  If you want to get started you can either contact the fund directly or open and investment account.  I have the best luck with Schwab.com (a bit more expensive but great customer service).

Rental Investments: Property is a great way to increase passive income if done correctly. The biggest mistake I see people make is going for appreciation as opposed to cash flow. If you structure your loans and programs to go for appreciation, you will find yourself in a crunch when the housing market dips down as it is now. If you take the other approach and go for cash flow neutrality with fixed loans, what you get is a property where total value in the short term is not relevant as long as rents remain flat or increase. How do you do this?

1. Buy only with fixed loans. When you do this you know you cost for the life of the loan and will not be subjected to a raising mortgage rate. On investment property, raising payments can quickly turn a property into a cash burning machine and if you can’t cover the negative cash flow you will be forced to sell or lose the house.  More on calculating and comparing loans.

2. If the housing market is going down rents typically raise. Why? Loans become harder to get and less people are willing to jump into a house at higher prices when they think the value is going to drop. This increases the demand on rentals therby pushing rents up.  This is good if you plan to purchase and investment property and your housing costs are fixed.

3. If you are cash flow positive or cash flow neutral and have a fixed loan you are less concerned about property price. This may seem odd, but if you can find an opportunity where you don’t burn cash on a monthly basis your investment is paying for itself. It has been proven over the last 100+ years that over the long run property increases in value. If you are cash flow positive or neutral a temporary drop in housing should not be an issue to you because you strategy is long term. Today’s housing market is tough to find cash neutral properties, but they are starting to surface. Be patient and you will find some.

If done right a good property investment can begin to generate large income in 20-30 years, plus you get the value of the property on top of the income.

Develop anything that has royalties. Do you have a talent like writing music or writing screen plays? If you have something good try submitting it to various organizations or industry people to publish. If you are lucky enough to get a break you could see great passive income. You don’t have much to lose to not try. Just make sure to take the effort to find the right people to get the word out on your work.  Also I recomend filing a copyright.  This can be done by following the instructions at the US copyright office. 

Create proposals and send them to Corporate CEO’s. Think this one is stupid? You would be surprised how well some good thought out ideas are received by corporate CEOs. However, before you go writing you idea on a napkin to send off to a CEO, make sure you do the following:

-Have a clear plan of action.
-Identify where and how your idea can create value to the product or company your are going after.
-Spend time to clearly write and format your proposal.
-Check spelling.
-Don’t reveal the entire story only enough to cause interest.
-Have knowledge of the company, its officers, and its ethics.

Ok, so you have the cure for cancer and your afraid to reveal it to someone for fear of losing the idea. Well that is the risk you must take and if done correctly can yield you great benefits. If it truly is a brilliant idea, then go after it yourself or file a patent. Point is, there are thousands of great ideas that most people sit on for fear of losing them. Usually these people make nothing from their ideas or wait so long that someone else eventually thinks of it. Can you relate, “oh that was my idea”, difference is that other person took action. If you don’t take action you will never succeed!

There are many other ways to develop passive income. I hope that I have inspired your thinking a bit. Now lets look at active income.

The best way to succeed with Active income is to find a way to get paid for doing the things that make you happy. Think about it, how much harder would you try if you were getting paid to play golf or make crafts. The challenging part is finding a way to get paid. If you are clever you could probably find a way to get paid for anything, just depends on how much time and effort you have to put into your idea.

One friend of mine loves to surf. Going to the beach every day does not bring in much income, so he decided to help out with some surf lessons in Malibu. He spent some time developing relationships with the parents and now every summer he has a thriving business teaching surf lessons to kids. He gets to be at the beach in the day and works his normal job on the off days and nights. Just one example how taking something you like and creating an opportunity out of it.

If you are a good writer, there are many companies now that offer paid posts or paid articles. This is another great alternate source of income. Probably won’t make you rich, but maybe bring in extra travel money.

There are many ways to succeed with alternate sources of active income. It is really just limited to your time and ideas.

Hopefully this will inspire you to think of ways to bring in alternate sources of income. Not all of them will be a home run and make you wealthy. In fact, failure is part of the game. However, if you fail at something you also learn and perhaps the next thing you try might be a home run. At the end of the day, if you are not trying how can you ever expect to hit the home run.

I will end with one thing I like to say: “There are no bad ideas, just bad execution”.