Question: I’m a young engineer working in Makati. I love my job, but my parents want me to start building my own business. I’m not business-oriented, and I don’t see the point of doing so since I have a stable job. Should I start building extra income opportunities anyway? I’m only 24 and still starting to build my career. -Kyle, asked on Facebook
Answer: I understand your dilemma, Kyle. It’s good to know that you are serious and focused about building your career. Most young people think that a job is the most stable income source, and feel like their monthly salary will be enough to sustain them forever. But if you lose your job for whatever reason, you will also lose your only source of income.
To protect yourself from being financially crippled, it’s good to start looking for another income stream, whether it’s your own business or investments. There are a number of ways to have multiple income streams and make you financially secure.
Financial experts recommend having savings or emergency fund intended for unfortunate incidents that are out of your control, such as a major illness or loss of a job. You can use your salary for your regular expenses, while the money you earn from your other income stream can be allotted for your emergency fund. This way, you have a financial safety net for any emergencies that require a large payout.
I recommend that you build three to six months of your living expenses in the emergency fund. Sudden loss of income is the most common reason for dipping into this fund, and it often takes weeks or months for anyone to find suitable employment after unexpectedly losing his job. If you are helping your parents with the household expenses, having an emergency fund will make sure everything is covered while you search for a new opportunity. A second income stream will also keep cash coming in to take care of needs that the emergency fund can’t cover.
If you’re already thinking of buying a home, a second income stream will facilitate the purchase. You can get a housing loan to finance most of the costs, but you need to submit bank statements, income tax returns, and other documents that will prove that you have enough income to pay for the loan. Showing evidence that you earn your money from different avenues may increase your chances of getting your loan approved.
First-time home buyers also make the mistake of thinking that the property’s selling price is the only expense they have to consider. However, there are a number of fees that come with buying property, such as property taxes, title transfer fees and insurance. Your second or third income stream can prepare you to meet all these expenses, which will then expedite the loan application and buying process.
If you aren’t even 30 yet, saving up for your retirement might be the last thing on your mind. But I highly recommend that you start saving up for it in your early 20s because time is still on your side. Money saved and invested when you’re 24 will enjoy four more decades of compounding interests or market gains. This means that the P1,000 pesos invested at age 24 is five times more valuable than P1,000 invested when you’re 44. Having a second income stream allows you to set this money aside while enjoying the material benefits of your full-time job’s salary.
Of all the clients I’ve advised, the ones who had the most money when they retired aren’t the people who earned the highest salaries. They’re the people who saved the most money. If you don’t start saving for your retirement while you’re young, you’re going to have to work extra years to make up for it or make more aggressive investments for a better rate of return. Neither of these situations is advisable. You should enjoy a comfortable retirement at the end of your career, and the best way to do it is to pay yourself and save up for your golden years.
For these reasons, developing multiple streams of income is something that each of us should start doing. The good news is that you don’t necessarily have to start your own business in order to do this.
One way to begin is by examining what you know and seeing if any of your skills are unusual or valuable to others. Do you know math well enough to tutor high school students? Are you skilled enough at a musical instrument to play gigs on the side? Monetizing your talents in this manner will not only benefit you financially—it’s also a way to level up your skills and grow your network.
Good luck, Kyle! Hope this helps. Join me and my friends, stock market expert Marvin Germo and entrepreneurship advocate Paulo Tibig for Money Talks Cebu on April 25, 2015. Visit https://www.randelltiongson.com/money-talks-goes-to-cebu/ for details.
Randell Tiongson is a registered financial planner of RFP Philippines. He is the author of best-selling book “No Nonsense Personal Finance” and “Money Manifesto” and coauthor of Inquirer’s Money Matters book. To learn about estate planning and protection, attend Chartered Trust and Estate Planner (CTEP) program on April 25-May 30. For details, inquire at info@rfp.ph or text <name><email><CTEP> at 0917-3464126.