Would you say it is wise to open a business if you are only allowed one single customer? And, that one customer can take their business somewhere else at any time without notice. That is exactly what everyone does who relies solely on their job as their only source of income. It sounds pretty crazy when it’s put that way. All of us either have been through losing a job or know someone who has unexpectedly lost a job.
Look how much we have tied to our job. Not only is a job usually our only source of income, but it is our source of health insurance and our funds for retirement. Talk about putting your eggs in one basket. This happened to me recently. I lost my job. The company I worked at for the last sixteen years closed its doors.
My wife had recently joined me on the company-provided health insurance policy. Now, I sit without a job and we both sit without health insurance. With the rising costs of health care, it’s almost suicide to go without health insurance. I’ll have to start looking elsewhere for health insurance. But, this article is not about insurance. This article is about three reasons why you need to diversify your income.
Diversify Your Income Reason #1; Changing trends in the market
Laws move trends. Pop culture moves trends. Politics moves trends. To make sure you have a consistent income you have to be ready to move with the changing trends. The problem is, as trends move, your income level will move also. To make your income level a little more consistent and predictable you need multiple streams of income. As one income area falls, the other is on its way up. This keeps your monthly intake consistent. The idea is somewhat like juggling. As one pin is on its way down, you are sending another on its way up.
You don’t want to let the falling pin go all the way to the ground. You want to relaunch it before it falls completely. The same goes for the declining income sectors in your portfolio. You want to grab it rework it and send it back flying into the air. Here is another aspect of it that is similar to juggling. The better you are, the more pins you can keep going at one particular time. You want to start with just one. Then, add another. And, if all is going well, add yet another.
If stuff starts getting out of control, maybe step back one pin. The idea is to keep juggling and reconfiguring to keep your total monthly income the same or more than the previous month.
Diversify Your Income Reason #2; Make yourself recession-proof
Our economy goes through natural up and down flows like the tides of the ocean. When we are in an upmarket, people have money to spend, interest rates are down, and the news is clamoring about how well the economy is doing. When we are in a down market, spending is sluggish, interest rates are high and you’ll hear reports the government will be lowering interest rates to spur the economy. People won’t want to spend their money on anything but necessities.
Have income tied to things people really can’t live without. Like housing for instance. When a recession hits, the housing market slows. Income-producing rental housing does well. People always need a place to live. Jobs are usually unstable in recessions. Having multiple streams of income will safeguard you in case you get fired. Arbitrage money-making systems do well in down economies.
If you can pick up some good bargains from people who need quick money, you may be able to turn them around for a quick profit. When the recession hits, be in a position where you won’t be affected. Make sure you have a little cash to spend to take advantage of some deals that may come around.
Diversify Your Income Reason #3; Giving you a piece of mind to know you don’t have to cave under mounting stress
There may be some people who function well under high amounts of stress. I’m not one of them. For me to function well, I need to know that whatever happens I’m covered. Having multiple streams of income gives me that safe and sound mindset so I can keep concentrating on what’s important. If I’m worried about how I will pay my bills next month, I won’t be at my best on the blog. That’s why I like large cash reserves.
If lose my job, I need to know I have enough money to keep my bills paid for at least the next six months. This will give me time to build my next source of income or find another job. Hopefully not the ladder of the two. It’s just way too stressful to have only one source of income. The more I think about this the more frustrated I get with our system. Nothing about income diversification is taught in schools. I’m not a conspiracy theorist, but is something going on here?
We are taught in schools that if we get a job the job will take care of us. Just make sure you follow all the rules until one day that job doesn’t need you anymore. With such volatility in the marketplace, how can anyone feel good about teaching our young people to put all their eggs in one basket and just get a good job? It just doesn’t make sense. I wish I had at least a little bit of entrepreneurial training when I was growing up. Protecting your financial well-being is a necessity, not just a good idea. It makes you recession-proof, resilient to shifts in the market and gives confidence that you will be financially ok if anything does happen.
Ok, enough of my rant.
Be Safe,
Kevin