Is ‘Income Stacking’ a Good Way to Build Wealth?
Adding an income stream can help boost your bank account, but it can also introduce new costs and complications.
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Financial planners often say you can pull two basic levers to improve your financial life: earn more money or spend less.
For people trying to grow their net worth, earning more than one paycheck might seem like the best path forward.
According to Fiverr’s Next Gen of Work survey, 67% of Gen Zers say that having two or more income streams, or “income stacking,” is essential for financial security.
Income stacking is gaining traction with other age groups, too.
Vered Frank, a certified financial planner in New York City, says the topic comes up in about 90% of initial conversations with millennial clients and prospects.
Income stacking can be an effective wealth-building tool, but it won’t pay off for everyone.
Why is income stacking so popular right now?
While side hustles have been around since, well, forever, they’re having a moment in the spotlight. One reason? Social media.
You’ve probably seen more and more influencer videos popping up on your YouTube, Instagram and TikTok feeds.
“I think a lot of people are being exposed to how different people are making money, whether it's selling on Amazon, a Shopify store, whatever it is,” says Patrick Yaghoobians, a CFP in Los Angeles.
Uncertainty around jobs and the economy is also playing a big part in the phenomenon. Consumer prices have grown, while job growth has slowed.
“People are feeling increasingly frustrated with their jobs, feeling like there isn't a lot of mobility right now in the workplace, and so all of that is culminating in people wanting to think about different ways to generate income,” Frank says.
Does extra income really help you build wealth?
Income stacking takes many forms. There are options to fit just about any skill or situation, from active work, like freelance writing or tutoring, to more passive income strategies, such as investing in dividend stocks or real estate.
While some side hustles are more lucrative than others, what matters more is how you use the money you bring in. Extra income could go toward a brokerage account, retirement savings or paying off the student loans that have been dragging you down financially.
It’s easier to make income stacking work when you have a clear goal and timeframe in mind, says Samantha Mockford, a CFP with San Francisco-based firm Citrine Capital.
“You may hate sacrificing sleep when you drive rideshare in the evenings, but it may be tolerable if it means being debt-free before the year ends,” she said in an email interview.
A side job might also help you build wealth by giving you an opportunity to develop valuable skills or break into a higher-paying career field.
Where might multiple income streams fall short?
Social media can make income stacking look like a breeze. But the reality is often much more complicated.
With many income streams, the pay can be unpredictable. Yaghoobians, who bought and sold clothes and shoes as a side gig in college, knows this firsthand.
“If you were able to get your hands on a pair of Yeezys when they came out back in the day, you could probably get 4X your money right off the bat,” he says. “Other times, I purchased products in the hopes of flipping them, and I ended up losing money.”
Most side hustles come with a learning curve, Yaghoobians says, and that can be discouraging.
It’s easy to underestimate the time and effort involved, especially with income streams such as rental properties.
“Becoming a landlord is one of the most labor-intensive forms of ‘passive income’ there is,” Mockford said. “You have to be ready to unclog a toilet, fix a broken AC in the summer and coordinate with contractors for major repairs.”
And even if the money comes rolling in, that doesn’t automatically put you on the path to wealth.
If you don’t have a well-thought-out plan, you might lose the extra income to lifestyle creep or costs such as maintenance and taxes.
“Higher income means higher taxes,” Mockford said. “So if your additional income stream does not automatically withhold taxes, remember that a portion of everything you bring in is not yours to keep.”
If your income streams don’t include a traditional full-time job, you may also miss out on valuable employer-sponsored benefits, such as health insurance and 401(k) plans. It’s on you to find alternatives, such as self-employed retirement plans.
Is income stacking right for you?
Frank says income stacking may be more practical for creating a flexible working schedule than for accumulating wealth. The biggest income gains often come from optimizing what someone already has, she says, such as negotiating pay, reducing taxes or investing more efficiently.
Before adding an income stream, you might consider taking steps like having a career conversation with your boss or maximizing the money you put into a health savings account, Frank says.
And if you’re still interested in stacking income? Know what you’re getting yourself into.
“Do proper research before diving into anything or committing any of your financial capital into it,” Yaghoobians says. “And just make sure that whatever you're doing, you dedicate your time accordingly to make sure that you're still maintaining the work-life balance that makes sense for your lifestyle and your family and your situation.”
When in doubt, talk to a professional. A financial advisor or certified public accountant can guide you through different scenarios and help you make sense of your options.
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