Build Your Income Portfolio

A new approach to personal income and how to grow tt

An investment portfolio is how we allocate our assets, also known as asset allocation. It provides diversification of returns and risks. If you've been saving and investing for a while, it's nothing strange to you.

While thinking about an investment portfolio helps when we're planning for retirement or working towards a net worth goal 20 to 30 years later, it's less helpful in our daily life after we have the strategy nailed down.

Based on personal experiences, while it's important to invest in the right assets, the very few things I have control over are:

  1. How much I feed into the investing strategy/system
  2. How long I allow my portfolio to grow

It got me thinking about my income—how much I make in a month, a week, or a day.

If an investment portfolio is the high-level, big picture path to creating wealth, what is the street-level approach that helps us navigate our daily financial decisions and hopefully achieve a few short-term lifestyle wants along the way?

How does your income portfolio look like?

Most of us have more than one source of income. Like how an investment portfolio show us our asset allocation, an income portfolio is a snapshot of how and where we make our money.

Having an income portfolio gives you a better picture of where you are now:

  • Are you a professional making a full-time income, at the same time, some revenue from a growing side hustle?
  • Are you a solopreneur juggling with multiple income sources from clients and digital products?
  • Are you retired and making most of your income from a retirement fund you saved up in past decades?

With these insights, you get to build better strategies to achieve both your short- and long-term goals, whether it's switching career or creating an additional income source.

Here's how my income portfolio looks like for 2020:

Dean's 2020 income sources

My income portfolio is made up largely by my day job at AppSumo plus revenue from this blog and other investments.

Since I wrote about protecting downsides, I've been thinking about how I can level up to protect my income too. Protecting my income also strengthens my investment portfolio by feeding more cash into the system and letting it ride for as long as possible. The two things I mentioned above.

So how do you protect your income?

  1. Have an income that's several times greater than your expenses
  2. Have multiple sources of income.

We will dive into the second option in this article. Here are a few income sources I come up with that may apply to most of you who are reading:

1. Day job

Most people start here. It's easier to get started here because you're dealing with one client—your employer—and most of them pay for your time instead of the outcome you create. But if you want to level up, go for a job or company that keeps you accountable based on your outcome.

2. Passive investment

While this is a part of your investment portfolio, guess what, it generates income too. Saving interest goes here. Stock dividend and appreciation go here too when you withdraw them as realized gains. Passive investment generates paltry income until you have a significant nest egg.

3. Active investment

Unlike passive investment, active investment takes more time and energy. Some examples include trading and real estate investing. You don't generate an income by simply buying and holding these assets, but by managing (finding a tenant) or trading (finding the next buyer) them.

4. Services

Here people pay you to carry out a task. But unlike a day job, you're providing your services to more than one client. Your client can pay you for your time, the deliverables (the task carried out), or the outcome. Like working at a day job, the trick to level up is by selling your services based on the outcome you create.

5. Products

With product income, you create and sell a product. It could be a physical or digital product via both offline or online channels. You could also productize your services with automations and systems to remove yourself from the process as much as possible.

6. Commission

Here, you make an income from the venture when someone purchase something you promote or sell. You don't provide a service or manufacture a product, you only promote and sell it. Traditionally, this includes product distributors, salespersons, insurance agents, and more. Personally, I'd consider channels like affiliate marketing, ads earnings (Google and YouTube), and platform profit sharing (Udemy and Skillshare) in this category too.

7. Community

Community income is nothing new, but it's gaining more traction lately. Some examples include income from platforms like Substack, Patreon, and Buy Me A Coffee.

. . .

These are broad categorization based on what I know and how I view the world. You can go broader (but that's probably not helpful) or more specific with how you want to create your income portfolio. For example, a salesperson who makes most of her income from commissions might want to get specific with the sources of where the commissions come from.

Each of these categories also has unique characteristics. Here's a table of how I think about them:

Characteristics of different income sources

I'm using a range here because these characteristics vary from time to time and person to person. To clarify what each of them means:

  • Effort is the resources—capital, time, and energy but I tend of focus a lot more on time and energy—required to build them. Low effort means it needs very little time and energy, and high effort means it takes lots of time and energy.
  • Probability is the chance of success. By success, I mean getting something out of your effort regardless of how small or big it is. Low probability means there's a high chance of total failure, while high probability means there's a high chance of success.
  • Impact is how significant the outcome will be if successful. Since we're talking about income, low impact means less money and high impact means making a ton of money.
  • Risk is what you have to lose. Other than financial loss, I'd also think about time wasted and opportunity missed. Low risk means it has little downsides, while high risk means the downside is great if it fails.

Here's how my income portfolio looks like when I break it down based on these categories:

Dean's 2020 income portfolio breakdown

While the return of my passive investment makes up over 1% of my total income, I don't consider all of it as an income because I haven't withdrawn it. The 1% I have right now is mostly interests earned from cash saving. I also have an investment property but it generates zero income because of the pandemic.

More thoughts on an income portfolio

Here are more unpolished thoughts about the concept of income portfolio:

1. Income diversification is not for everyone

While building an additional source of income is never a bad thing, it's okay to depend on one single source of income as long as you think through your plan B in case of the source get affected by unforeseeable events.

There are people who make a handsome salary from their jobs and there are people who live on the income generated by their investments. So it's totally fine if you're not interested in creating multiple sources of income, or at least not now.

2. Make use of shared resources

If you run your a business or think about starting one, note that many of these income sources are interconnected in terms of resources. For example, if you're generating an income from a YouTube channel, the audience is also a resource if you want to create and sell some kind of product.

Your day job could provide the resources, in terms of capital, stability, or network, to a new income source, be it starting a business or investing passively.

3. Keep it mind that your resources are limited

Creating a new income source usually takes a lot of time and work, especially when you're just starting out. You can invest in passive income sources, but if you're going into active ones, make sure you focus on only a few at a time.

The 25/5 rule is an effective principle to think about focus and prioritization. While you're going through the process, know that making more money isn't the only thing that takes up your time and energy. Other life areas are fighting for your attention too. And it's certainly not the only thing that makes up a meaningful and successful life.

. . .

That's what I have to say about income portfolio. What do you think about the concept? And how does your income portfolio look like? Feel free to share with me on Twitter.


More recommended reads

What if the best way to accomplish more is by doing less?

Join Work Less to get practical insights and tips to help you work less, earn more, and live a better life—straight to your inbox—every Sunday. The first email goes out on July 3.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

👆 Join 3,100+ leaders, creatives, and knowledge workers today.

Dean is a strong voice in the self-mastery space. His newsletter consistently delivers insightful ideas on how to become a better version of yourself and is the only newsletter that I always read.

Sebastian Kade

Head of product and engineering