Saturday, August 12, 2017

Second Income

Investor Riding a Currency Note, happy with second income or extra income

Meaning of Second Income

Second income means the extra income or additional income that complements one's primary source of income. It could be an active income or a passive income

It is quite possible that a man who has a 9 am to 5 pm job may take up a second or part-time job as a shop assistant from 7 to 10 pm to augment his main and regular pay.

However in the context of attaining financial freedom - the situation which all of us invariably crave, whereby we do not have to work for a living - the meaning of second income always denotes passive income or residual income.

In this article henceforth I use the expression second income only to mean the passive income.

Examples of Second Income

Examples os Second Income: Share with Dividend; House with Rental Income; Bond and Interest Income
  • Interest - from savings and fixed deposits and bonds
  • Dividend from stocks, shares and mutual funds
  • Royalty on sale of a book or a music album
  • Rent from immovable properties

Importance of Second Income

A second income is beneficial in innumerable ways, including:
  • It supplements the primary/ regular/ main source of income
  • It helps to take an extra vacation without a feeling guilt
  • It boosts the capacity for savings and investment
  • If reinvested, the second income helps generate further second income, setting in motion a perpetual cycle of income, investment and more income, accelerating the path to financial freedom and getting rich and wealthy

flowchart of perpetual second income cycle

  • Usually passive second incomes accrue while you are sleeping/ resting
  • In case a person becomes incapacitated to keep-up the main job passive second income springs to the rescue
  • Only second incomes lead to financial freedom and eventually wealth and riches

Second Income Accrues When you are Asleep

Invariably passive second incomes accrue even while the individual is resting or sleeping. Interest accrues 24 hours of the day, irrespective of whether you are working, holidaying, sleeping or resting. 

Similarly if you have written a book or cut a music album a copy could be sold in any part of the world even while you are sleeping.

Rent too accrues based on time and not based on use.

investor's exuberance at 24x7 rain of second income

But the income from your regular day job will accrue only when you are able to work/ exert. If you become incapacitated to work, you will loose the job and your regular/ main stream of income. Thats why people should invest money in stocks and bonds which work for you 24 hours of the day.

Therefore it is smart to explore second income opportunities. Those who are talented - authors, musicians, actors, etc., should target royalty income. Others should maintain a simple lifestyle, save, invest and generate second incomes in the form of interest and dividends.

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Second Income/ Extra Income/ Passive Income/ Residual Income is vitally important for every person who is aspiring for a life where he or she is not bound to work for a living. Talented individuals should explore generating royalty kind of second income while for the others prudent and well considered investments is the only option. Rich and wealth have perfected the art of reinvesting second incomes for further generation of more passive incomes.

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