One of the few commonly agreed on lessons from the rich is that people should aim to have multiple sources of income. By not being reliant on any single revenue stream, we are diversified and protected should anything go wrong.
Think about it — if you’re employed right now — what would happen if you received your P45 in the post tomorrow? It’s said that we should have at least six months’ worth of savings in the bank for a rainy day, but very few people aged 30 (or younger or older for that matter) actually do.
And that also means no extra cash left over to generate additional revenue streams. To my mind, the best extra revenue stream is dividend income. But buying shares (through a Stocks and Shares ISA that protects gains from the taxman) can only happen if you have cash to spare. So how do you generate that cash?
Create an income/outgoing table
The first thing that I would do to start boosting my bottom line would be to create a table that lists all income and existing revenue streams in a spreadsheet. Then I’d list all the necessary expenses so that I could see what exactly I need to earn in order to stay afloat.
Doing this would me an idea of what’s coming out of my bank account every month.
And from there, I can start by scrutinising all of my outgoings. Most people when they get a pay rise don’t save more, but they spend more. This is called lifestyle creep — and it’s a big reason why many people struggle to achieve real wealth.
With every promotion comes a bigger car, a fancy holiday, more gadgets. Now, I’m not saying that people shouldn’t spend their money on this if that’s what they enjoy — everyone has the right to spend their money however they want. But we should all be careful we’re not sacrificing future wealth for short-term pleasures.
Start chopping the fat
That Starbucks coffee you buy as you leave the house in a rush? That’s costing you nearly £4 per day. Get up five minutes earlier and invest in a thermal mug. That’s nearly £20 a week spent on coffee saved!
Are you spending too much on lunch a month? Are you signed up to a gym you rarely go to? How many monthly subscriptions are you signed up to — are you really getting the value out of them all?
You’d be amazed at how much per month you can save just by cutting back on unnecessary expenditures. I recently realised that I’d spent over £200 on a monthly video streaming platform that I hadn’t watched in over a year.
Pay yourself first
With the money saved, it’s time to start ‘paying yourself’. Here’s what I’d do: transfer some money into a rainy day fund, and the rest I would invest (within that ISA) in a low-cost passive tracker. That way, I’m reaping the benefits of the stock market and getting my investing journey under way.
Being exposed to the stock market means you’ll start your journey, taking advantage of the power of compounding. Companies such as Rightmove have earned investors fortunes — through buying shares, you can take advantage of the long-term wealth journey that the stock market creates.
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Michael Taylor does not own shares in Rightmove. The Motley Fool UK has recommended Rightmove. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.