Money Management: Ways to Diversify Your Income
A few decades ago, if you had a job at any given company, you usually had career security—and possibly a pension. That employment setup has been replaced by one in which companies replace workers without too much thought, and the average person is expected to have more than five jobs over the course of a lifetime.
In a world where you can be easily replaced, it’s vital that you develop household cash flow that isn’t dependent on a single source. Relying on a job for most of your household income can result in financial catastrophe if your hours are cut or you lose your job. Instead, to prepare for the future, it’s a good idea to diversify your household income.
Sources of income diversity
There are a variety of options when it comes to cultivating income diversity, which allows you to receive cash flow from more than one source. Here are some of the more popular options for diversifying your income sources:
- Another job: Consider taking on another job. This doesn’t mean that the primary breadwinner has to be the one to take on a part-time job in addition to a full-time job. A stay-at-home spouse may also be able to work part-time to bring in a little more each month. This is especially feasible in families where the children are school age.
- Odd jobs: Instead of getting a part-time job, look into earning money through odd jobs. Offer yard care, do handy work, or find some other niche to fill.
- Home business: One of the best ways to cultivate another source of income is to start a home business. This can include anything from offering childcare in your home to freelancing to operating a drop-ship business. No matter what you decide to do, though, realize that you will need the proper licenses for your area.
- Income investments: If you are willing to build up an income portfolio over the course of a decade, it’s possible to eventually create an income stream from dividend stocks, bonds, and other income investments.
- Royalties: Think about creating something. Books, music, and even photographs can provide you with a regular income stream from the royalties.
Use your creativity and consider which combination of extra income ideas might work best for you. If you lose your primary job, these other sources of income might not replace the income from your job, but they can help alleviate some of the financial stress that results from the situation.
How to use other income streams
As you develop additional income streams, it’s important to consider how they will be used. Initially, it’s a wise choice to put all of the money you earn from additional income streams into your emergency fund. Live off the income from your regular job, and put the extra earnings into a high-yield account. Shoring up your financial situation should be a priority. A large emergency fund can be a real boon during times of financial distress.
Once you have used your additional income to build up an emergency fund with nine to 12 months’ worth of expenses, start thinking of other ways to use that extra money. Consider investing some of it for the future as well as using it as “fun money.”
Income diversity is a way to protect yourself and your family from the shifts in today’s job market. Develop diverse sources of income, and you will be able to take charge of your financial life instead of leaving it at the mercy of your employer. And, you never know: In time, your supplemental income may eventually replace the income from your day job.
Miranda Marquit is a freelance writer and professional blogger specializing in personal finance, family finance and business topics. She writes for several online and offline publications. Miranda is the co-author of Community 101: How to Grow an Online Community, and the writer behind PlantingMoneySeeds.com.