While investment diversification is a fairly popular concept, few people realise that diversifying your income is equally beneficial.It’s a good idea to diversify your income to create one or more streams of passive income. This way you maximise your income stream and at the same time protect yourself from job insecurity.
Multiple income streams are our greatest source of comfort in the path to wealth creation. Having additional sources of income to rely upon is a very important strategy that will stand us in good stead in the long run.
In fact, given today’s rather unreliable job scenario, an innovative business entrepreneur is at less risk from an employed individual. This is because the entrepreneur can consider branching out into alternate sectors during a negative economic phase, but the employed person will lose his entire salary in the event of redundancy.
Diversifying your income helps you hedge against the risk of imminent job loss, salary cuts and rising expenses. As you increase your buffer against sudden and unpleasant changes, you become more self-confident as your money begins to generate even more wealth than before.
As a matter of fact, people who have not opted to diversify their income may find themselves in dire straits in the aftermath of a job loss. They will be forced to request for unemployment assistance or run the risk of getting into debt. Even if you find a job again, a substantial portion of your income may be used to repay any debts that you have incurred after job loss.
As yourself the following questions:
- What would happen if I lost my job tomorrow? (This has happened to thousands of people so it’s not a hypothetical question)
- How would I pay my bills/rent/mortgage/school fees if I lost my active income?
- What is my primary source of income?
- Can I earn more money in my spare time?
- Can I get my money to work harder for me?
The answers to these questions will help you understand the importance of diversifying your income. Building multiple income streams (which is what diversification is all about) helps cushion you against life’s uncertainties and gives you a head-start with wealth creation.
It’s worthwhile to note that the key to a healthy financial status is two-pronged: One is to earn more (this is where diversification comes in handy) while other is to cut back spending. Combine the two and you’ll have the perfect recipe for financial success.