Have you ever thought about diversifying your income the same way it’s recommended you diversify your investment portfolio?
If not, you should. Why? Put simply, it safeguards you against loss of income – if you lose one income stream, you still have others coming in.
It’s never a good idea to put all your eggs in one basket where your finances are concerned.
Why You Should Diversify Your Income
Think about your main source of income and how it enables you to afford your day-to-day expenses.
Now, think about what would happen if that main source of income was taken away.
It would likely wreck havoc on your financial situation.
None of us like thinking about the possibility of losing our jobs, but unfortunately, jobs aren’t guaranteed forever (as the recession taught us).
It’s important to insure ourselves against the loss of income.
You can do this in a few ways – first, by building an emergency fund, so you have 3-6 months’ worth of living expenses saved up. That means having a little breathing room while you search for a job to replace your income.
Second, you can create multiple streams of income so that if one ever runs dry, you have others you can count on.
Wondering how to get started? It’s not hard – read on for a few ideas!
However, side hustles are also great to have because they diversify your income. And the more clients your side hustle has, the better – that’s further diversifying.
Any good freelancer knows their income shouldn’t come from just one client. You’re leaving yourself too vulnerable if that’s the case.
Put another way, you should never let someone else (or a company) have that much control over your pay. A business can tank, someone can decide to never call you for a gig again, and someone could fire you without a good reason.
There are a lot of things that could potentially happen to your income, and having a side hustle or two gives you an extra layer of security. At least you know you’ll be bringing home something over nothing.
Plus, if you really had to (in the event finding a new job is difficult0, you could always try making a living from your side hustle.
If you’re interested in becoming a landlord someday, consider investing in a rental property.
Yep, renting a house out can be a great source of income every month. It’s not completely passive and can require management to handle, but if you want to build several sources of monthly income, buying rental property is a good way to do it.
There are several people out there who plan on paying off their rental properties and retiring off of the income they generate, and there are plenty more who have successfully used this as a retirement income strategy.
It pays to plan now so you have enough time to pay off your mortgage!
Owning a Business
This is a little different from having a side hustle – you could have a cash flow positive business that preferably runs without you. People are working under you, or you have a business structure where you’re not needed every day.
An example of the latter would be owning a few websites that generate income from ads or affiliate income. Actively managing your websites isn’t necessary because they run on their own.
Dividend income specifically comes to mind here. In very simple terms (thanks to Investopedia), a dividend is “a distribution of a portion of a company’s earnings, decided by the board of directors, to a class of its shareholders.”
When you invest in dividends, you can slowly build a portfolio that eventually pays you hundreds or thousands per month. You can also choose to reinvest dividends as well.
Create Products to Sell
This is similar to a side hustle, but different in the sense that you could take a one-off project approach here to make it more passive.
For example, you could write an ebook and update it once a year if necessary. Do a decent job of promoting it, put it on Amazon, and leave it there.
Of course, this isn’t super reliable, but you might be surprised at how many sales you’ll be able to generate!
Another idea that requires a bit more managing is creating a course to sell. Are you an expert at something? Want to teach that something to people? Create a text-based or video-based course around it!
Diversifying is Fun
Creating more streams of income is fun? Why yes, it is! Think about it this way – earning money on the side can help cover certain expenses. If your student loan payments are $300 a month, aim to earn $300 (or more) from one of these ideas. Then, the rest of your regular income can be applied to your routine expenses.
We went over how rental property can help provide an income in retirement, but there are also a few people who plan on using that income to fund their savings goals (saving for their kids’ education, for example).
The ways in which you can diversify your income are unlimited, and that’s a good thing! You want to be diversified in case one stream runs dry.
Additionally, creating more streams of income means you’re earning more, and that’s always helpful if you have multiple financial goals you’re working toward.
So whether you choose to do something that requires your attention on a daily basis, or if you choose the passive income route, you’ll be covered in case of a financial emergency.
Of course, earning cash back when you make purchases with us can also serve to diversify where your money is coming from!
Have you diversified your income? What different income streams do you have?