If you want to be rich, you need multiple streams of income.
It’s almost impossible to get wealthy by your salary alone. The good news is, with the right mindset and skills, you can use your salary to create investments that will generate wealth for you.
It’s not too good to be true. It’s simple economics. Once you see it, you will see it everywhere.
In this article, I will teach you how to create multiple streams of income.
What Makes Rich People Rich?
When I was 18, my dad gave me the book Rich Dad, Poor Dad, written by Robert Kiyosaki. At the time, I was still snorting about 160 mg of OxyContin a day and wasn’t quite ready to accept the idea that I could be wealthy.
But the seed was planted. The lessons in this book made me realize what wealth actually is.
I learned that wealth isn’t about having money. How much money you have is almost irrelevant. You don’t get rich by having a lot of money.
You get rich by owning a lot of assets.
What is an asset?
This is an important question, because the government and the banks define assets much differently than your personal income statement.
Let’s imagine you’re going to the bank in hopes of being approved for a loan. In that circumstance, the bank might ask you to list your assets. You might list your home and your car as assets. You might even list valuable jewelry like a Rolex or an engagement ring.
You will list these assets so the bank can use them as collateral in the event that you don’t pay your loan back.
But this is a false narrative. In reality, your home, your car, and your jewelry are not assets. They are liabilities.
Why? Because they take money out of your bank account.
To put it simply, an asset is anything that puts money in your bank account. A liability is anything that takes money out of your bank account.
Your home is a liability. It doesn’t make you any money. It only takes money out of your bank account.
Your car is the worst investment you could possibly make. Your car does nothing but take money out of your bank account.
With this new knowledge, it is easy to understand the difference between poor people, middle class people, and rich people.
Fundamentally, it is the ownership of assets and the cash flow generated by those assets that make people rich.
In Rich Dad, Poor Dad, Kiyosaki explains this through some easy to understand visualizations.
This is a poor person
The arrow is meant to represent cash flow, or the flow of money from one sector to another.
A poor person generally lives off of a salary, and their money goes straight to taxes, rent, food, clothes, transportation, and other expenses.
The poor work for their money. Their hard work is rewarded in the form of a paycheck, and their paycheck is immediately taxed by the government. The government gets their money before the employee does, and the remaining money is used to pay for expenses.
Poor people stay poor because they have no option other than to participate in the rat race. Their labor is the biggest generator of revenue for the government. Poor people pay for the bridges, the roads, and the trash collection because they get taxed up front.
This is a middle class person
Middle class people are often worse off than poor people. Middle class people generally get paid more, but the increase in pay creates other hidden and more insidious problems.
Unfortunately, the high salary incentivizes middle class people to buy things on credit. It is extremely common for middle class people to have consumer debt that well exceeds their income.
As such, the cash flow chart of the middle class starts with a salary, passes through to daily expenses (such as food and gas), then it flows to liabilities (such as a mortgage and credit card debt), and then typically goes back to expenses to pay for bills, utilities, internet, and an iPhone.
The middle class have a harder time getting rich because they are always underwater in debt. The middle class remind me of a quote from Fight Club that I keep dear to my heart.
This is a rich person
Everything you need to know about generating wealth can be summarized into one sentence.
Rich people own assets which generate cash flow.
They then use the cash flow to buy more assets.
This is why rich people will always get richer, because once you start accruing assets, it becomes easier and easier to accrue more assets. Compounding kicks in and then wealth grows exponentially.
The question becomes, how do you put yourself in a position to buy assets?
The Money Has Gotta Come From Somewhere
It requires more force to get an object moving than it it takes to keep an object moving.
The law of inertia applies to everything in life, including finances.
This means the hardest part in creating wealth is usually acquiring the upfront capital needed to purchase or finance your first cash flowing asset.
In English: Where you gonna get the money?
Don’t quit your day job
In most cases, your best bet is to ruthlessly save your money until you have enough to buy your first asset. Once you buy your first asset, you can start collecting payments until you’ve saved enough money to do it again.
Now you have two cash flowing assets. And guess what?
YOU NOW HAVE MULTIPLE STREAMS OF INCOME!
In time, the cash flow will continue to compound and your wealth will grow exponentially. Visually, you can see the difference in the chart below.
On the left is the typical middle class worker who continues to increase his / her salary over time until eventually the growth curve levels out. On the right, is the rare entrepreneur who spends time accumulating assets that create multiple income streams which creates a parabolic growth curve.
Saving money is one option, but it’s not the only option.
Using other people’s money
Another way to acquire the upfront capital is to take out a loan or accept an investment from an outside investor.
One of the reasons why real estate is so appealing to investors is because real estate appreciates in value over time. This means that banks are more than willing to give out loans to people who want to buy a home.
With this knowledge, you can easily take out a bank loan and then use that loan to buy a rental property.
If the property is an investment property, it’s likely you will have to put 20% deposit down on the property, which means you will still have to work and save money. Regardless, in application, this is a perfectly viable option for most people.
Once you buy your first property, you can begin accumulating positive cash flow through your rent payments. Your mortgage is paid for by your tenants and you make a small profit each month. This means you can reinvest those profits into another investment.
It’s important that we talk about debt. The reality is that taking on debt is probably the most straight forward way to get the upfront capital to buy your first asset. But that doesn’t mean you should do it. I don’t want anyone to read this and take out a $300,000 dollar loan and then default on your payments because “Tim Stoddart told you to do it.”
Although debt is a great way to acquire the initial capital needed for your investment, there is still a part of my thinking that feels very uncomfortable with owing people money. The only debt I have is on my own personal mortgage for the home I live in. I am not recommending you do this, and if you do decide to take out debt to acquire your asset, please do so carefully.
With that said, it’s my personal fear of debt that incentivized me to create my own method.
The production company method
Stodzy internet marketing is a profitable business. As a standalone entity, it’s a business that provides me with dividends and fat quarterly payments. That’s great!
However, my marketing agency is also a cash infusion asset that allows me to purchase or build other businesses. This means that instead of taking out loans from the bank, I generate my own investment capital by building and growing my own business.
This method requires discipline, because most people can’t handle having lots of cash in the bank and not buying a brand new Mercedes.
My goal is to be wealthy. This means I use the profits from my agency to reinvest back into my business or into other businesses.
It took about 7 months for the website to start generating profits. After that, it quickly has turned into a great passive income asset. I earn about $700 a month from the company.
Although we took a recent hit from an algorithm update, we quickly made the adjustments we needed and we are almost back to our baseline profits.
So you may look at this and ask “why would you spend $35,000 to make $700 a month?”
It’s simple. This investment gave me another income stream and in addition, it gave me ownership of an asset that will (most likely) appreciate in value over time.
If the website continues to generate $700 a month, it would take me 5 years to make my money back and start generating profits. This would be a disappointing result, but it would still be a good investment.
However, it’s much more probable that I average around $1500 a month in cash flow which means I’ll start generating profits in 2 1/2 years. The $1500 a month is nothing but free cash flow into my bank account.
Jonny and I can sit on the website forever, or we could probably sell it at a 20X multiple. The reason why we started this business in the first place is because content sites like this one sell at such high multiples because there are rich people out there who simply want to spend money to buy a cash flowing asset.
My guess is that my $35,000 investment will make me at least $100,000.
The best part is I have done literally no work at all. I put up the money and Jonny does the work.
Rinse and Repeat
Now, it’s easy to highlight one recent example and paint a picture of automatic money pouring into my bank account.
It’s important to understand that this doesn’t happen all at once and it’s also important to understand that it doesn’t always work out. For example, a few years ago I made a $100,000 investment in a company I really believed in, and that entire investment went to zero.
Bryan and I started Stodzy in 2011. It was years before I made any real money, but we kept hustling and kept improving our skills until we were able to finally hit that peak velocity that allowed us to start paying ourselves meaningful dividends.
I used these dividends to buy assets.
I still buy cheap clothes, cheap belts, Chuck Taylors, and I don’t own a single watch that costs more than $60. In fact, I only own 2 watches and I never wear them because watches are annoying and dumb.
I am in this position because I made the commitment early on to spend my money on buying assets.
This means that I own equity in companies and I own stocks.
At this point, I think I own (or have partial ownership) is 10 or more companies. All of these companies cash flow, which means they put money in my bank account each month.
How Do You Get Started?
Acquiring wealth is not complicated. I’ve laid out the entire process in this article.
But there is a huge difference in knowing what to do, and actually doing it. In most cases, what’s holding you back is the belief that you can do it. The poverty mindset is strong and it tricks you into thinking “I could never do something like that.”
But you can. I know you can because I did it. If I can do it, you can do it.
If you’re serious about wealth generation, then I want you to focus all your effort on acquiring your first asset. It doesn’t matter how big it is and it doesn’t matter what it is. Maybe you buy 10% of a local hot dog stand. Maybe you spend $1000 on a website that makes $25 a month through Google ads.
It doesn’t matter. What matters is that you break the mental barrier that keeps you from investing in yourself. Once you get that first check in the mail, you will know that it’s possible.
At which point, you can do it again, and then do it again, and then do it again.
You got this. I believe in you.