A New Year’s Plan You Should Start Working on Now

Eddie is a very shrewd guy. In 2004, while the real estate bubble was still inflating in the United States, he took a job I offered him to run a real estate development project in Nicaragua.

He could have made lots more money taking on another project in the U.S., but he decided he was much better off if this — his fourth stream of income at the time — came from an economy that was independent of the one he was in.

A year after he made that decision, things in the U.S. started falling apart. One year later, one of his projects went belly up and the income he’d been getting from it stopped completely. A year later, the same thing happened to a second project — and then a year later, his third U.S. project (which had been generating big cash for him) was crippled by a series of negative events and died an inglorious death.

Had he not taken my offer, he’d be dead broke today. But the Nicaraguan project continued to throw off cash — more than a million dollars at last count. More important, it led to a bigger project in Panama that is giving him great cash flow now and connections for new deals in the future.

This happened while most of his fellow developers were going completely bust.

I’ve said it before, but it bears repeating. When it comes to your income, don’t rely on a single source for the money you need to live. And you especially don’t want to rely on a single source of income if it comes from a business owned by someone other than you!

All over the world, hardworking people are being laid off in record numbers.

You may think that if you have a profitable business or well-paying job now, you are safe. If you believe that, it’s probably because you have bought into the government’s argument that the Great Recession is over and we are on our way to a slow and steady recovery.

I don’t believe that for a second. We are still very much in a recession. What we’ve experienced so far is just the first stage — similar to what happened in America in 1928. If you know your financial history, you know that the Great Depression occurred in two distinct periods, with a false recovery in between. That, I’m confident, is what we are experiencing right now.

Our elected officials and their bureaucratic minions won’t tell you that, because it is in their interest to lie. So long as they make us feel that the worst is behind us, we will start spending money (money we don’t have). That is how they believe recovery will occur.

But you can’t recover from debt by taking on more of it. The government deepened our debt by $3 trillion in emergency spending from December 2007 to July 2010.. And it has done nothing to work off the more than $10 trillion in debt it had accumulated before then.

The true indication of economic recovery is employment, and the unemployment rate has not improved at all in the past two years. In fact, it’s gotten worse. Even using government figures, it is almost 10% today. But if you analyze unemployment numbers correctly, it is more than 50% higher than that.

Our federal government is in debt, and most municipal governments are too. The debt keeps getting larger, and our government expenses keep going up. Nothing the Obama administration has done (and nothing Bush did) will reverse that trend.

So in my view, there is absolutely no chance that we will see an increase in employment in the next year or two. There are still tens of thousands of businesses – and millions of Americans — all over the country that are heavily in debt. They are all trying to hold on by clawing and scratching, but it simply won’t work.

In fiscal year 2010, there were 1,596,355 bankruptcies, up from 1,402,816 in 2009. In 2011, we’ll see more.

So don’t count on your current business or job to carry you through. And don’t count on Social Security, Medicare, or your pension fund either.

Social Security is in serious trouble. According to U.S. government calculations, the program will be bankrupt by 2037.

This year, both Medicare and Social Security needed additional funding from elsewhere in the government. Social Security required an infusion of $41 billion. Next year, Social Security will once again pay out more in benefits than it collects in tax receipts. And after two years in the black, beginning in 2015, its negative balance is expected to grow rapidly.

Medicare is in even worse shape. Medicare will become insolvent by 2029, eight years sooner than Social Security.

After 2029, Medicare will be able to pay only about 85% of its benefits (or less) from its tax revenues.

And the program for disabled people will run out of money by 2018, two years earlier than previously projected!

We are not through with the Great Recession. We are not recovering. I don’t trust for a moment the government data that suggests we are.

There is still so much bad debt that must come out, and still so many thousands of businesses that are on the verge of bankruptcy.

Despite our supposed economic recovery, 58,322 businesses filed for bankruptcy during the fiscal year ending September 30, 2010. The year before, there were 58,721 bankruptcies, a miniscule drop of only 0.7%. Similar numbers are expected for the coming year.

Perhaps you are thinking that your 401(k) will bounce back to its former height. This is highly unlikely, as a recent “60 Minutes” report made clear.

As I said, employment is the key to economic recovery, and there is no reason to believe unemployment will decrease any time soon. My bet is that the official unemployment rate will be at 11% by the end of 2011 and 12% the following year. (And the actual unemployment rate will be six or eight points higher than that.)

In my father’s day, a person could expect to retire at 65 with a pension and Social Security benefits large enough to provide him with a comfortable life.

I turn 65 in 2015, and this is what I’m counting on:

• Little or nothing from Social Security — barely enough to pay for a cheap apartment and a diet of peanut butter and jelly sandwiches.
• Little or nothing from Medicare for my health care needs, because the system will have nearly collapsed by then.
• A stock market that is at least 30% lower than it is now, and a stock portfolio to match.

It is even possible that my municipal bonds would be worth nothing by then, and that the government would be trying to confiscate my gold.

These are my expectations. And though I’m hoping I’m wrong, I’m smart enough to plan as though it’s going to happen.

I’m not worried about the future — grim as it looks — because I am prepared. You see, about 25 years ago, when I first decided I had to be responsible for my financial well being, I made a promise to myself to develop multiple streams of income.

I had a good job back then. I worked for a South Florida publisher who liked me and was paying me well. But I didn’t believe for a second that he wouldn’t fire me if his business took a nosedive.

And even after I became his partner and started making millions, I didn’t feel comfortable relying on that stream of income alone. What if our business failed? What if we got sued or scammed or both? What would I do then?

I decided that, as good as things were, I wasn’t going to count on my partner or our business to ensure my long-term survival. So I started investing in other little businesses and making income-earning investments. My thought was that I would create several extra income streams so that if one or two of them dried up I’d have another one or two to count on.

It took a while to get the first stream of income going — and at first, it was just $50 or $100 month. But gradually, it increased. And as it did, I added other streams of income — and they, too, grew gradually.

I now have at least a dozen streams of income, including:

• 5 separate consulting incomes in 3 different industries
• rental income from more than 25 houses and condominiums
• income from a public relations business
• income from a real estate development in Panama

I spend most of my time on the business that brings in my primary stream of income. And in my spare time, I tend to these other streams and rivulets. Several of them bring in six figures annually. Several others bring in a few thousand dollars every month, which is still very nice.

But I haven’t stopped there.

Recently I invested in:

• a woodworking business
• an art dealership
• a movie distribution business
• a home building business

I expect all of them to be profitable in the next year or two.

But the size of my total river is not important. What’s important is that it is larger than my yearly expenditures. I can maintain my present lifestyle if not just my main income but half of my other income streams disappeared.

This is the kind of financial peace of mind you should be looking for. And the time to start looking is right now.

Christmas is a week away. And the best gift you can give yourself is a second income. It doesn’t have to be huge at the beginning. But it should be something that can grow as time goes on. Something that can one day — maybe sooner than you expect — replace the income you have now.

The main thing is to get something — anything — going right now.

The current Great Recession will almost certainly last another five to seven years. (That’s how long the economists I trust say it will take the U.S. to work itself out of the debt we’ve gotten ourselves into.) And though you can reduce your living expenses if you must, you cannot reduce your living expenses to nothing.

But you can exempt yourself from this vicious downtrend by creating second and third (and more) income streams for yourself, starting with…

My top recommendations for new income in 2011

• Information Publishing

I explained the advantages of this business in last week’s Journal. To refresh your memory:

It has low start-up costs, and it allows you to work from anywhere. And as an information publisher online, you can start out small and keep testing new products and promotions inexpensively. When you find something that works, you can “roll it out” instantly.

You can “speak” to your customers daily (mostly through e-mail) and, thus, significantly increase (even quintuple) the lifetime value of each buyer. And the profit margins for this business are potentially huge.

As it happens Jason, my publisher, tells me that ETR’s own Internet information publishing program, the Internet Money Club, is accepting a limited number of new members right now — and there’s a special deal.

• Freelance consulting
• Rental real estate
• Natural health
• Pet products and services
• Businesses that will serve aging baby boomers
• Bars (not restaurants)
• Selling advice via the Internet
• Selling cheap goods via the Internet

In upcoming Journals, I’ll give you ideas for developing these streams of income. Stay tuned.

[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]