Fighting inflation with multiple income streams

What is Income? In its simplest form, income is money that an individual or business receives in exchange for providing a good or service. Income can be divided into two types

• Active income
• Passive income

both have their own unique advantages and disadvantages which we will explore in this blog post. 

Global inflation outlook

The map above shows how inflation rates stand in December 2022. It can be clearly seen that while North America and most of Western Europe is going through multi decade high inflation rates, they are still around or under 15% mark, with many countries still having their inflation rates in single digits. 

Meanwhile, the developing countries that are concentrated in South Asia, Middle East, Africa and South America are going through inflation rates well above 20%. Rising inflation is not only hurting the economy of these developing countries but it is also triggering mass unemployment, social and political unrest. 

Before we attempt to give a forecast of inflation in 2023, let’s try to quickly list down the main factors driving inflation right now. These factors include but are not limited to

• Supply chain issues due to lockdowns in China
• Downstream supply shocks due to rolling lockdowns
• Russia – Ukraine war
• Energy and food crises due to Russia – Ukraine war
• Localized governance issues

Based on these factors, it can be assumed that 2023 is not going to be much different. The recent drop in oil prices may have provided some relief but this may turn out to be short lived. 

Rolling lockdowns will keep sending supply shocks but the bigger threat right now is the energy crisis in Europe caused by the Russia – Ukraine war. Food price inflation is also on the cards for countries that rely heavily on wheat imports from Ukraine in particular. 

Rising inflation, vanishing savings! 

Inflation is a very real and serious problem in today’s economy. It can occur when the money supply in an economy begins to outpace economic growth, causing the value of money to drop. This can lead to higher prices for goods and services, making it difficult for people to keep up with their expenses. When inflation rises, so does the cost of everyday items like food, fuel and clothing. These are all essential purchases that most people need to make on a regular basis in order to sustain themselves and their families.

Additionally, inflation often occurs when there is an imbalance between demand and supply, resulting in a higher cost of products due to increased competition among suppliers. The world was heading towards a commodity supercycle and Covid catalyzed it further. This triggered supply side inflation, which only worsened things.

Unfortunately, wages have not kept up with rising prices which means that individuals must find additional sources of income or struggle just to stay afloat financially. This is an especially tough situation for those who are living paycheck-to-paycheck or relying solely on one source of income such as Social Security or disability benefits. 

Even if your salary keeps up with the rising costs due to inflation, it may still not be enough to save money for retirement or purchase luxury items such as cars or homes. This can cause financial strain as those items become increasingly expensive over time and can make it impossible to plan ahead for the future. In addition, it may also lead to feelings of insecurity because you never know when prices will suddenly increase beyond what you’re able to afford at the time. 

Cutting to the chase, having a single source of income is no longer feasible in this day and age. Financial security requires individuals and families alike to think outside the box when it comes to generating additional sources of revenue while also reinforcing savings habits during good times so they are better prepared during more trying economic periods down the road.

Luckily, today generating multiple sources of income has become easier than ever.  One way to do so is by diversifying income streams with active and passive sources. What’s the difference between the two? Let’s take a look!

Active Income:

Active income requires an investment of time and energy, typically through employment or self-employment activities such as your day job, freelance writing, web design, consulting services, rental property management, etc.

Generally speaking, the more effort you put into your job the more you can earn; however there is often an upper ceiling on earnings from active incomes sources – eventually you will reach a point at which it doesn’t make sense to work any harder to make more money because there are diminishing returns for every hour worked beyond a certain point due to taxes, overhead costs such as transportation expenses, etc.

Despite this limitation there are still strategies to maximize earnings from your active income sources such as negotiating higher pay rates with employers/clients or finding ways to increase productivity per hour worked (e.g., using task automation tools).  

Passive Income:

On the other hand, passive income does not require much personal involvement; instead it relies on investments or initial effort that generate returns automatically – think things like dividend payments from stocks & bonds and rental properties (with tenants paying your mortgage each month) that allow you to sit back & enjoy the fruits of your labor without any additional effort required on your part after the initial investment has been made. Recurring income from Youtube videos, royalties, subscriptions, blogging ad revenue and affiliate commissions etc. also fall into this category of passive income.

The key benefit is that you can generate a steady stream of income without sacrificing your time or energy; however there is an added element of risk as well since passive income sources require more initial effort and capital investments up front which may not always lead to returns over the long term.

Unlike active incomes sources there is no guarantee that these investments will remain profitable over time; some may provide consistent returns while others may fluctuate in value unpredictably making them riskier than their active counterparts but also potentially yielding greater rewards if managed wisely over time since they have no upper ceiling on returns like active incomes do.

Nonetheless it’s important to understand how these investments can be created & sustained before venturing down the path of creating a passive stream of revenue so that you don’t end up losing money instead!  

Conclusion

In this day and age, it is vital to set up multiple income streams along side your active income stream. This way, if one source of income dries up, you have others to fall back on. This is especially important in light of the current economy, which can be unpredictable and cause sudden price hikes that you may not be able to afford. By having multiple sources of income, you are better prepared for difficult times ahead.