This post was put to the Motley Fool board on June 28, 2001 (REHP Post #43,904).
I believe in the concept of Multiple Profit Centers, which I discovered in a book called Making a Living Without a Job, by Barbara Winters. She argues that: "Rather than thinking in terms of having a single source of income (as we are trained to do when we see our income tied to our job), the savvy entrepreneur thinks about developing several income sources....No prudent investor puts all his saving in one stock, and no sensible business goes after only one customer."
The fundamental problem with much corporate work, in my view, is that the individual employee is vulnerable to the whims of a large, unresponsive, inefficient organization. If you have a newsletter with 1,000 subscribers, no one of them can pressure you into doing something you don't feel good about. The income from the other 999 keeps you going, and over time you get more subscribers by making sound decisions. But the corporate employee must go along with the decisions of his or her one boss, no matter how short-sighted the boss may be. Demonstrating loyalty is more important to the process of getting ahead than is demonstrating competence or creativity.
My financial independence stash (FI stash) supplies one stream of income, the one that is most critical, the one that pays the bills for food and shelter. Now I'm working on developing other streams. If for any reason one stream does not produce what I hoped (say, my investments do poorly), the odds are that I will be able to make up the loss with income from some other stream (freelance writing or one of the other ideas I am working on).
There is not much connection between my ability to make money from freelance writing and my ability to make money from investments. So there is no reason to think that bad times will hit both income streams at the same time, as happens when a worker with stock options gets a double hit when his employer falls on hard times.
Actually, corporate employees often suffer a triple hit. Their investments go down, their income goes down, and the demand for their skills on the job market all go down at the same time if the reason for the employer's troubles are general market conditions. This is not so for the freelancer. Demand for freelancers often goes up in recessions because employers need sometime to handle the work previously done by the people terminated, and don't want to take on full-time employees.
There are lots of possibilities for work and pay that open up when you no longer are dependent on a wage for the basic expenses. Most workers never explore the possibilities because the idea of not being dependent on a corporate salary is one they view as not within the range of the possible. Achieve financial independence, even at a level where only the basic expenses are covered, and a new world of alternatives open up to you.
These alternatives don't pay as much at the start. That's why most people don't see much appeal in them. But they have two big advantages.
First, many of them have the potential to provide big pay-offs down the road. You might not receive much return in the early years because most of your compensation then is in the form of advancement along the learning curve. But on the day when you figure out how to produce something with strong market value, the returns all go to you (whereas an employee who comes up with a million dollar idea might get a pat on the back and a $5,000 raise).
Second, the worker with multiple income streams is far less vulnerable to economic downturns, corporate mergers, and other unpleasant surprises.
There's one big downside to Winter's approach, in my view--the possibility of falling victim to Starving Artists Syndrome. That's where you love the work you do in theory, but are so worried about paying the bills that in the real world you are having little fun. In my view, this can be as bad a situation as making a big salary and hating the work you do. The idea is not to jump from one extreme to the other, but to figure out how to obtain the greatest possible enjoyment of life out of your particular set of work skills.
The likelihood is that in time your independent ventures will start to pay off, at least to some degree, but it is entirely possible that there will be a few years where you earn so little that you are forced to economize in ways that are genuinely painful. The whole point of my financial independence plan was to find protection from this downside of the Multiple Income Streams approach to work.
With an FI stash, I don't have to worry about living through a time where I eat pork and beans and stay out of the path of the landlord. The only consequence of a bad year for me is that I don't get to take a vacation or buy a new car. So I get the best of both worlds--I can't be fired, and I'll never be really poor. On top of that, I get to choose the work I find most appealing.
To my mind, the Multiple Streams of Income approach offers the best overall package of benefits: it guarantees soul-satisfying work, leaves open the possibility of a big financial pay-off, and eliminates the curse of paycheck dependence.
I believe in the concept of Multiple Profit Centers, which I discovered in a book called Making a Living Without a Job, by Barbara Winters. She argues that: "Rather than thinking in terms of having a single source of income (as we are trained to do when we see our income tied to our job), the savvy entrepreneur thinks about developing several income sources....No prudent investor puts all his saving in one stock, and no sensible business goes after only one customer."
The fundamental problem with much corporate work, in my view, is that the individual employee is vulnerable to the whims of a large, unresponsive, inefficient organization. If you have a newsletter with 1,000 subscribers, no one of them can pressure you into doing something you don't feel good about. The income from the other 999 keeps you going, and over time you get more subscribers by making sound decisions. But the corporate employee must go along with the decisions of his or her one boss, no matter how short-sighted the boss may be. Demonstrating loyalty is more important to the process of getting ahead than is demonstrating competence or creativity.
My financial independence stash (FI stash) supplies one stream of income, the one that is most critical, the one that pays the bills for food and shelter. Now I'm working on developing other streams. If for any reason one stream does not produce what I hoped (say, my investments do poorly), the odds are that I will be able to make up the loss with income from some other stream (freelance writing or one of the other ideas I am working on).
There is not much connection between my ability to make money from freelance writing and my ability to make money from investments. So there is no reason to think that bad times will hit both income streams at the same time, as happens when a worker with stock options gets a double hit when his employer falls on hard times.
Actually, corporate employees often suffer a triple hit. Their investments go down, their income goes down, and the demand for their skills on the job market all go down at the same time if the reason for the employer's troubles are general market conditions. This is not so for the freelancer. Demand for freelancers often goes up in recessions because employers need sometime to handle the work previously done by the people terminated, and don't want to take on full-time employees.
There are lots of possibilities for work and pay that open up when you no longer are dependent on a wage for the basic expenses. Most workers never explore the possibilities because the idea of not being dependent on a corporate salary is one they view as not within the range of the possible. Achieve financial independence, even at a level where only the basic expenses are covered, and a new world of alternatives open up to you.
These alternatives don't pay as much at the start. That's why most people don't see much appeal in them. But they have two big advantages.
First, many of them have the potential to provide big pay-offs down the road. You might not receive much return in the early years because most of your compensation then is in the form of advancement along the learning curve. But on the day when you figure out how to produce something with strong market value, the returns all go to you (whereas an employee who comes up with a million dollar idea might get a pat on the back and a $5,000 raise).
Second, the worker with multiple income streams is far less vulnerable to economic downturns, corporate mergers, and other unpleasant surprises.
There's one big downside to Winter's approach, in my view--the possibility of falling victim to Starving Artists Syndrome. That's where you love the work you do in theory, but are so worried about paying the bills that in the real world you are having little fun. In my view, this can be as bad a situation as making a big salary and hating the work you do. The idea is not to jump from one extreme to the other, but to figure out how to obtain the greatest possible enjoyment of life out of your particular set of work skills.
The likelihood is that in time your independent ventures will start to pay off, at least to some degree, but it is entirely possible that there will be a few years where you earn so little that you are forced to economize in ways that are genuinely painful. The whole point of my financial independence plan was to find protection from this downside of the Multiple Income Streams approach to work.
With an FI stash, I don't have to worry about living through a time where I eat pork and beans and stay out of the path of the landlord. The only consequence of a bad year for me is that I don't get to take a vacation or buy a new car. So I get the best of both worlds--I can't be fired, and I'll never be really poor. On top of that, I get to choose the work I find most appealing.
To my mind, the Multiple Streams of Income approach offers the best overall package of benefits: it guarantees soul-satisfying work, leaves open the possibility of a big financial pay-off, and eliminates the curse of paycheck dependence.
I have a friend who collects cool stuff and rents them as props to movie studios.
