Diversify your personal income for improved financial stability
If you’ve been watching the markets these days, you can see that all of the uncertainty and public reaction to all of the crises in the world is causing big swings. If you haven’t diversified your investment portfolio, you are probably riding this wild rollercoaster and feeling some financial stress. All good financial advisors advocate diversifying your portfolio so that you get steady growth despite certain types of investments going through large swings, both up and down.
Few financial advisors take a look at your personal sources of income beyond the income generated by your investments. As many households have experienced in the last several years, a lay off can be devastating. The typical household has one or two sources of income coming from full time jobs. Many households live from paycheck to paycheck spending all of their income on bills like mortgage payments, insurance, groceries, utilities, and hopefully a little fun. The problem is that this means that if even one source of income goes away, so does your ability to pay those bills. Diversifying your sources of income so that your total household income comes from a minimum of five sources can provide you with some stability in your life when bad luck strikes.
How does someone have enough time to have five sources of income? Clearly, a household with two working adults can’t take on five full time jobs. The best scenario is to have five sources of income of which at least three are passive such as rental, investment, or the sale of products or knowledge. As you reach retirement age, your IRAs can become another source of income in addition to your non-IRA investment income. If you plan things well, by the time you retire, your passive income can continue allowing you to retire from your jobs without a drop in lifestyle.
The sale of products or knowledge can be time-consuming if the product requires a lot of time or funding to sustain. This may impact your ability to manage your time if you are also working full time. Look for something that taps into your expertise or a niche that fulfills a need that is underserved. For example, perhaps you are known amongst your friends for putting together outstanding food and drink recipes for events. You could put together sets of recipes for specific events such as holiday meals, football parties, and picnics that people can download for a small price. After the initial investment, your recipes can bring in money on its own. Subsequent investments of time to add new recipes will entice return customers. The bonus about this idea is that it is likely something you are doing anyways so the only extra effort is to document what you’re cooking. Your customers will find value because the task of planning has been taken care of.
Even if you succeed in setting up more sources of income, committing too much of that income will still put you in a poor financial condition if your total income drops too much. So before you sign up for that mortgage that is at the maximum that your lender will give you, think about what you would need to do to sustain that payment in the long run.
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