Financial Independence

Why Building the Second Stream of Income is the Hardest

The key lessons financial gurus leave out

Click most articles on Medium and other publications about building wealth and financial independence — they all tend to regurgitate the same playbook. First, in order to build financial security, you need multiple streams of income. Second, to create those streams, you simply need to pick from their list of potential business ideas that you can start TODAY to build this everlasting flow of money that will bathe your family’s coffers for generations to come.

After reading hundreds of articles like this, I honestly don’t know if these folks are truly trying to be helpful or just pushing more crap online to meet their weekly writing quota.

Unfortunately, there are thousands of hard-working people out there every week, reading articles like this, looking for a way to start. And most start for only two reasons: 1) they hate the source of income from stream #1 and they’re hoping income stream #2 can replace it; 2) income stream #1 may be too low and they simply need more money. Whichever the reason, they pick from this magic list and eventually find themselves up the income creek without a paddle.

But why is this?

Why is it so hard to generate even an additional $100, $500, or even thousands in net new income consistently every month? And we’re not talking about cutting expenses to “save your way” to additional income — we’re referring to growing your actual pie.

The reason for many failures is much easier to find than that second stream of income.

Creating a second stream of income requires giving up something from the first stream. Many would-be entrepreneurs go into their new venture or side hustle thinking that the new income is purely additive. After all, that’s how every side hustle and start-an-LLC guru pitches it.

In practice, very few second income ideas worth doing are purely additive; they require giving up time, money or both these things from your first income stream.

Time

If you work a regular W-2 job, you are already familiar with trading time for money. You give a company your time (and hopefully do a good job), and they pay you money. In order to build your second stream, it will require taking time away from your first job physically and mentally. When your focus is outside of work, it impacts your day job. It’s hard to give 100% in two places — even if for a while, it eventually takes its toll.

Whether you’re a salaried employee or have the potential for overtime pay, you are taking time away from your first income source to develop your second.

While a salaried employee may try to devise ways to work “less” while building their second stream, there is the unintended consequence of getting passed up for raises and promotions which impacts your future earnings. As cruel as it sounds, those late nights and extra work on weekends make it easier for your manager to justify your promotion — people notice. Once you decide to be the first person out the door at 5:00pm every day, you’re committing yourself to no future advancement at the company. No advancement means no higher salary, which ties into the second challenge.

Money

Writing is one of the few second income ideas that you can start for zero dollars out of pocket. You don’t have to buy or rent equipment; there’s no raw materials to purchase. You just find a computer and type. You may even be able to borrow one at the local library if you can’t afford your own. But make no mistake, you are still trading time in order to write.

For most, however, starting a new venture WILL REQUIRE some capital outlay. If you’re baking cakes, doing real estate on the side, or even coaching youth soccer, there will be some basic and ongoing expenses to consider before even your first dollar comes in.

Where does that initial cash come from? Typically, your first stream of income.

Many businesses fail because they’re underfunded. Think, you can have the best product in the world, but if you have no time or money to market it, you’ll fail just as fast as you started, becoming another statistic to the Small Business Administration.

So, if your first income stream does not produce enough necessary cash to fund your second income stream, you get off to a bad start. Even worse, you then go to credit cards and other personal loans to kickstart your second income stream.

Many say, “I’d never do that,” yet we all have multiple friends and family that have “tried something” to produce this elusive second stream of income.

The Danger of Side Hustles: The Uber Example

While Uber is a great example of a great service for consumers, it is also the perfect example of why it’s almost impossible to be a long-term second stream of income. It requires both your time and money.

For every hour you drive for Uber, it’s time you’re not putting towards your first income stream. There’s really no such thing as doing it during your “downtime” — at best time is making you money or you’re making $0, at worst it’s costing you money. On the money side of the equation, you’re having to put money into your vehicle to ensure it’s always in good condition. On top of that you’re paying for your own gas. There is no final state where the car maintenance becomes less expensive or you make so much you can hire someone else to drive your Uber slot for you.

The model is tenuous at best, seen most recently with the rise in gas prices, making this side hustle now unprofitable for some.

If you can navigate your way around the time and money challenges related to your first income stream, you’re two-thirds the way to success. But the last third can be the hardest.

Creating Value

Does anyone really want what you’re selling? This by far is the hardest truth when looking for ways to generate new income streams. It is also the reason why many looking for a reliable second income buy into a franchise or proven business model. But remember… this requires you’ve saved enough money from your first income stream.

The most successful people who’ve transitioned from a single source of income to a second stream have figured out how to create value — a product or service where people are willing to pay. Once they have the equation, you’ll notice how easy it seems that they move from a second income, to a third, fourth, and so on.

Conclusion

Your ability to generate a second stream of income cannot be done in a vacuum — it’s highly dependent on factors related to your first stream of income. Do you have the time? Do you have the money? Do you (preferably) have both?

Can you make the sacrifices to your first stream to eventually make enough in the second that you’re net positive overall?

Are you making these sacrifices for something of real value… something that can be sustained month after month, year after year?

Many fail at figuring out this secret formula to building this second stream. But if you do solve the mystery of the second, the other streams become much easier.

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