Welcome to Step 2 of my “Diversifying Income Streams” strategy I started working on many years ago. If you get lost somewhere in the text below, refer to Step 1 for a bit of background.
When you get into investing, one of the first things you read about is diversification of investments. Diversification is important so that if one field is doing bad, another field will carry your portfolio so that the risk of losing a lot of money is reduced. I decided to see if the same strategy can be applied to each of my income streams so that not only my overall income stream is diversified, but so that each individual stream is also a mixed basket.
Full Time Job
This section may not be applicable to most people and most jobs, but as I climbed the corporate ladder, I discovered all the benefits of working hard and started to learn about all the way I could get more money out of my job. I started off with something very simple and easily accessible to all employees – RRSP matching.
One of the first things I learned about after my trial period was the company’s RRSP matching. If I were to contribute a percentage of my salary to a Group RRSP, the company would match my contribution up to 3.5% of my salary. This was a no-brainer so after my trial period, my income stream looked like this:
When the company matches your contribution, the matched amount gets added to your reported income. Also, if you are wondering why the pie chart only shows that 3.4% comes from RRSP matching, remember that the 3.5% is added on top of the salary, which changes the denominator in the equation from 1 to 1.035.
I joined the company halfway in the fiscal year so I was told that I wouldn’t be eligible for any performance bonuses. However, I did inquire about this and what it would take to qualify for the program the following fiscal year.
The requirement was simple – I had to work an average of 44 hours per week for the fiscal year to qualify. That means that I could be working 44 hours each week, or I could work 48 hours one week and 40 hours the next week. At first it was challenging, but as I took on more work, it became easy. Some years I even averaged close to 50 hours per week for the entire year.
At the end of the year, your bonus was just the total number of hours you worked over the required amount. For me at first it was anything over 2,000 hours (40 hours per week, 50 work weeks per year and 2 weeks vacation). Later on that became 1,960 hours (40 hours per week, 49 work weeks per year and 3 weeks vacation). This started to add another 10% to 15% on top of my base salary.
At the end of the first full fiscal year, and my second year with the company, my income streams looked like this:
Becoming a Shareholder
As I took on more work and responsibilities, I started to move up the ladder and at one point I was casually asked at a work party if I were interested in becoming a shareholder? I said that I was interested, but I wasn’t sure if I could afford it.
About half a year later, and a lot of hard work later, I got a formal, non-binding offer from the executives with a range of sums I could invest. Once I accepted, I was given the financials of the company and a binding offer if I were satisfied with the financials.
One of the original shareholders sold his share and there was enough money in the company to allow new shareholders without capital to be given an interest-free loan for up to 5 years. This is the option I went for because…interest free!!!! Also the offer came in at the worst-possible time when I bought a home and spent a lot of money on renovations, appliances and furniture.
Now my income streams look like this:
I recently learned about another income stream option available to selected senior staff – profit sharing. I am currently working towards going up the ranks to get to the point where I can be considered for profit sharing as well. Profit sharing is done each quarter after shareholders are paid their share so I will have the opportunity to double-dip into the profits.
I am not sure what the true financials are behind the profit sharing program, but from what I have heard it is not too great at first, but you steadily see an increase of your percentage of profit sharing over the years. I heard that some of the more senior staff, who have been taking advantage of this for over 10 years are making almost as much as their base salary from profits.
This is where I am still lacking a lot of knowledge, but trying to learn something new every day. Before I sold my investments for a downpayment for the condo, I had 7 dividend paying stocks/ETFs I was invested in, in addition to a few other non-dividend paying stocks. One was an REIT, one was an income fund and the others were a mix of ETFs. The REIT and the income fund boosted my monthly dividend payments quite nicely and at their peak, I was earning close to $100 per month from them, which I thought was a decent start after a year and a half of investing in dividend stocks.
I don’t remember the exact mix at the time, so I cannot provide a pie chart, but I can provide one of my current portfolio that I am trying to rebuild:
Yes, I know it could be better, but it will improve with time.
I have only done a bit of diversification with my website in terms of income streams. I was, and still am, largely dependent on AdSense for my income. Earlier this year a couple of friends agreed to help me completely overhaul the website and come up with different revenue strategies for the first time in 6 years. But since we are all busy with work, the expected timeframe for all changes is expected to be 2016.
By then, we hope to have several additional income streams, including ebooks and print-on-demand material. Can’t wait. It will be expensive since I will need to hire a database developer as the website is 90% database driven and I am at my knowledge limit, but I think it will be worth it.
Back to diversifying my website income. In addition to AdSense, I hired a couple of local guys to put together very quickly a plain and cheap mobile app of my database site. The app is free, but it is ad-supported with AdMob. The revenues fluctuate a lot, but it did help me boost my income slightly and does account now for around 15% of website revenues. My current website revenues are like this:
If you are like me, you are probably dying to see a summary pie chart with all of my income streams, each broken down in more detail…well, here it is:
How are your income streams?