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In this article, I look at a concept I call the “Income Triangle”. While I originally developed this for creatives such as creative entrepreneurs and entertainers, this concept really applies to anyone; business owners, employers and employees.
Virtually all successful creative entrepreneurs have one thing in common; they derive their income from several different sources. You should be no different.
I use a very simple concept to view my income and understand where it should be coming from. This is what I call the “Income Triangle”.
There are three main sources of income for a creative entrepreneur or individual:
- Active Income derived from the creative entrepreneur’s product/ service or the salary of an employee.
- Additional Streams of Income related to the creative entrepreneur’s creative passion, expertise or experience
- Returns on Investments from income-generating assets
This forms the base of your income triangle and is your primary income that you derive from your creative product as a creative entrepreneur. If you are an employee, this will be the salary that you draw from you job.
Generally, your active income refers to income that requires your presence or participation for the creative product to be delivered or your job to be performed.
The majority of your income will come from your active income.
Additional Streams of Income
Many established creative entrepreneurs work on developing additional streams of income.
Personally, for creative entrepreneurs, I think it is important that your additional streams of income should complement your active income and should not distract or affect the quality or continued innovation of your primary creative product.
The additional stream of income should also be related or complement your market.
Employees can consider developing income streams from their hobby or passion. If your job allows, you find sales commission-driven jobs such as being a property agent, sales person or sign up for multi-level marketing programs.
Returns on Investments
When most think about investments, the common impression is that you are investing for the hope of a return on the investment when you eventually sell it or it matures.
Long-term financial planning is no doubt one of the most common goals of investing. However, you can also invest into income-generating assets that can offer regular income or cash flow while still appreciating in value over time.
Investing in real estate that generates rental income or investing in stocks that offer regular dividends or investing directly in a business that gives out profits are all examples of assets that can also be a source of income.
The key is to learn where to invest your money based on your locality, risk tolerance, time horizon and investment goals.
The “Equilateral” Income Triangle
Naturally, for most of your career, your active income will make up the bulk of your income.
However, over time, your goal should be to diversify your income and make your income triangle into an equilateral triangle. That is, make it as equal-sided as possible.
If you can reach a stage where your total income is almost equally divided between your active income, additional streams of income and returns on investment, you would likely have reached an ideal state of financial stability.
The Income Triangle is closely tied to the stage of your career as a creative professional. I discuss the 3 stages of a creative’s career in this post here.
As of Oct 2016, my own Income Triangle is by no means equilateral, although I am working on it. I’m fortunate that my active income grosses six figures but the other two sides of my Income Triangle combined only add up to about 40% of my active income. I don’t count the asset value of the investments, only the cashflow they bring in yearly.
Hopefully, my other two sides continue to grow steadily. I have only been seriously working on the additional streams of income and returns on investments for the past 4 years compared to my active income which was been built over 20 years. However, my experience and current online tools have allowed the gap to be covered fairly quickly. I have no doubt others can do the same.
Creatives should start as early as possible to work on all sides of their Income Triangle in parallel to reach financial stability and freedom as early as possible.