Wealth Pillar Six: Develop a future income

Will you have a sufficient income level when you retire?

This is a question many people are considering in the current climate as share prices fall, superannuation returns drop and employment has diminished. 

Being able to retire not only with enough money to live, but with an income that will support the lifestyle you dream of is a critical aspect of your wealth creation plan.

How you can ensure a future income.

There is a number of ways to begin to ensure an income for your future. 

This can include businesses that provide a passive income for minimal time investment, rent from real estate, dividends from share investments, royalties from music created, etc. 

The list is huge, but the important thing is to start while there is time left to get the wheels in motion.

The importance of multiple income streams in retirement

As the recent economic climate has shown, it is best for an individual not to solely rely on one source of income in retirement (and during working years for that matter). 

As retirement is increasingly becoming a worst-case scenario, ideally you should look for a way to enjoy your life while preparing to increase income streams as you go along.

An example of this might be as follows:

Joe Brown has recently graduated from university with a Bachelor of Business Management. He obtains a job as a trainee executive on $45,000 a year. 

From this income, Joe begins to save 10% of his pre-tax income a year ($4,500). He intends to invest $4,500 a year for the next 39 years (until age 60) with a return of at least 8.00% per annum.

Assuming Joe does this, and assuming his returns net as planned, by age 60 he will have have $1,165,754.33 in his investments. 

If he keeps it in the current investments he will have a passive income of $93,260.35 a year to live on past the age of 60. This is the first future income stream.

Joe works hard at his job and manages to receive multiple promotions and from 21-31 begins to become recognised as an expert in his field. 

His income has increased to $80,000 per annum so he invests some of his money (which he has saved as he has budgeted his expenses rather than increasing his lifestyle) into an investment property that produces a positive cash flow

He uses this positive cash flow to pay down the principle on the loan. 

This will then become a second income stream (either through rent once the loan is paid off or sale of the property for a capital gain).

Now being an expert in management, Joe starts out as a management consultant in his free time and develops some material which he turns into a CD and a manual. 

He then sets up a site selling his consulting services and his product. 

Being a savvy marketer, Joe manages to set up his site to a point where he gets three hours of management consulting work a week in his spare time at $100 an hour ($300 a week), and sells his product on the site which produces an additional $500 a week (profit).  This is his third income stream.

Joe also begins to max out his superannuation account and sets this up as a fourth income stream. 

As you can see, Joe is slowly building himself an empire which will continue to produce him an income even while he is not there. This will help him to have a secure future in retirement.

How you go about this process of setting up multiple income streams is entirely up to you, however I would recommend the following two suggestions:

  1. Get educated regarding business and investing: There are many people who will happily take your money from you and prevent you from seeing it again. Study and make wise decisions regarding your money.
  2. Find a mentor: find someone who has done what you intend to do and learn as much as possible from them. And don't be afraid to show your appreciation for their help, whether it is by paying for their meal, getting them tickets to their favorite sporting event, etc

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