5 Income Streams are a Necessity for Early Retirement

Have you heard of the acronym FIRE? It stands for Financial Independence and Retire Early. It refers to a growing movement of people that are hanging up their suits and ties for pajama’s and a home office. Early retirement has a negative connotation attached to it. People think it means quitting your job, being lazy, and waiting until your cash pile runs out and then are forced back to work later in life. I’ve been working a “day job” since I was 16 years old, and I’ve been working a full-time load almost since the beginning. Over the past several years I have been eyeing early retirement to focus more on family, friends, and what I have been calling “my side business”. Call it side business,  a side hustle, an extra gig, or my night job…but it now equates to roughly 75% of my total take-home pay for the year. If anything, I should be referring to my day job as a “side business”.

I recently had my first child, a daughter, and unfortunately my work life isn’t slowing down by any means. I want to focus more on what’s important in life but I also still need to earn a living. I have been giving more and more thought to what it takes to not have a traditional day job anymore and what I would need to feel comfortable depending on only myself going forward. There is a certain calm about having a career and working for a company that provides a steady paycheck, good health benefits, and a retirement account with matching funds. Giving that up isn’t easy, plus my career has become a part of my life over the past 12 years and part of me isn’t entirely sure that I’m ready to give it up 100% just yet.

Regardless, I know I can’t go on working both my day job and sustaining, let alone growing, my side business indefinitely. When I talk retirement I am only referring to my day job, and I think that’s most of what the FIRE movement is talking about when they use the same term. Financially independent doesn’t mean do nothing, it just means you can do what you want, when you want, and answer only to yourself. Can you imagine that feeling? If I don’t want to miss out on a nice day outside, or a moment with my family, or simply wake up to an alarm on a particular day and time, then I no longer have to. Initially I told myself, and many others, that I planned to retire when I was 55. That just sounded like a nice round number to choose from, and much earlier than the typical age of 65 that we so often associate with retirement. Then I switched it to 53 as my business continued to grow. That number sounded better because it was earlier of course, yet it was still arbitrary. Over the past year I have changed my retirement age to 50. Again, earlier the better, but a little less arbitrary this time. First, it’s only 14 years away, which feels like it’s within reach. Second, that’s the exact age I plan to pay off the mortgage on my primary residence. Still, as the hours and workload continue to pile up in life, I can’t help but think I would like to see retirement come much sooner than that.

While I am still trying to nail down the exact age of my early retirement and the start of my financial independence, I do know the specifics of what I need to achieve it. I truly believe that diversification and multiple income streams is a necessity for early retirement, at least for me anyways. I plan on having 5 income streams that will allow me to sleep at night long after I’ve left my day job.

Real Estate (Tangible)

This is a loaded income stream, and can mean so many different things. For me, real estate means rental properties. I have purchased two rental properties over the past year or so, one locally and one in a popular vacation destination. I want to rely on these properties as an income stream going into retirement. However, I’m also keeping the option open of eventually selling them at some point if the market makes sense. I can say without a doubt, that the local property has already increased in value by roughly 30% over the past year, which is simply mind boggling to me. I have no plans to sell anytime soon, rather I will continue to rent out these properties while I use the income to aggressively pay down the mortgages so that I own them both free and clear. This income is mostly passive, but buying up properties can take a lot of time and research, and then you give up a good portion of the earnings to property management companies so that you can remain hands off.

Real Estate (Intangible)

Yes, real estate is showing up again! You may have noticed the words tangible and intangible in parenthesis above. Tangible means something you can touch, like a house or condo, or even a vacant property etc. Intangible means I am investing in funds related to real estate, without owning specific properties themselves. Most people would refer to these as REIT’s, or real estate investment trusts. However, if I invest in an REIT’s that is all captured within my brokerage accounts, which we will get to later on in the article. My intangible investments are a little more laser focused, in that I use a company called Fund Rise to invest in specific commercial and residential properties in different regions of the US. The barriers to entry are low, and the returns are fairly high. Not to mention this adds another layer of diversification to my portfolio. I automatically reinvest all dividends for now, but eventually I may choose to take them in the form of income if I retire from my day job…or at least if there comes a time when I need to rely on them.

Web Properties

It’s no secret that I own a lot of websites. I talk about it often in my monthly income reports, and buying up new sites has become an integral part of my business strategy. I recently purchased GroundReport.com which was a significant investment in both time and money, but one that I hope pays off in the near future. I spend a lot of time managing, creating content, and customer outreach regarding advertising efforts on these sites. Still, there is a passive income stream attached to them in the form of Google Adsense. These are the clickable ads you see on the sidebar and throughout the content on my sites. The more I can make passively while I’m sleeping or enjoying the fruits of my labor, the better!

Investment Income

Investment income can mean a lot of things, in this instance I’m mainly referring to dividend income on my investments. Equities go up and down in value all the time, and while I love picking a winner, I often focus my efforts on building up my dividend income stream. Every month, I build up my dividend stock portfolio in my after-tax brokerage account, as well as my SEP IRA account. I’m trying to fully replace my day job income within this stream alone. Based on how much money I invest in the above mentioned income streams, I doubt this will happen anytime soon, but it’s still a goal I am shooting for. Those months where I make several thousand dollars of dividend income across my investment accounts are really exciting to me. To me, this is the very definition of passive income as I literally do nothing after I purchase these stocks except holding them and collecting the dividends. All of these investments are part of a DRIP (dividend reinvestment plan), which means I automatically buy more shares of each stock with the dividend income rather than taking it as a cash distribution. It lowers my taxes and builds my portfolio.

Alternative Investments

Last, but not necessarily least, is what I like to call “alternative investments”. This category is more general because it’s a catch-all for anything else I deem an additional income stream. I have dabbled in peer-to-peer lending, like Lending Club and Prosper, but I sold my positions a couple years ago. Due to regulatory issues within my state it makes investing in those companies more difficult than I would prefer, and I am all about simplifying my life, not making it more difficult. I do, however, have an investment in Fund Rise as I mentioned above. I purchased a small pre-IPO stake that they offered to their customers several months ago. If the opportunity arises I may eventually purchase more down the line, as I believe the future of investing in real estate lies here. It’s hard to call this an “income stream” since my position in the company sort of sits there until a point in time that there is an IPO or they sell the company off. But when that time comes (hopefully) I am expecting a nice payoff! I am also looking at other crowd funding sites for similar equity and debt investments in fledgling companies that I believe in. This might not provide an immediate return, but it’s something I can buy and hold in hopes of a healthy return to pad my retirement savings.

While I’m not saying that everyone who decides to seek out financial independence HAS to have 5 different income streams, I am only saying that having as many as possible helps lower your risk and increase your peace of mind. At least that is what is has done for me.