Why Income Diversity is So Important
Lately, I’ve been thinking about how I can diversify my income. As a freelancer, I’m self-employed, but that doesn’t mean that my income isn’t at risk. And, while I feel better about my income situation than I would if I had a “real” job, the reality is that income diversity is something everyone should be concerned with. It’s a way to invest in yourself.
What is Income Diversity?
The concept of income diversity is fairly straightforward: you develop revenue streams that are independent of each other.
For most people, income comes from a day job. It’s the only source of income someone might have. Any income diversity in a household might come from a life partner having a job as well, whether it’s a part-time job or a full-time job.
Others add revenue streams in order to boost their income and avoid the pitfalls that come when you rely too heavily on one source of income. You might have a side business, a second job or some sort of investment income (dividends or rental property).
Creating multiple streams of income is a good way to shore up your finances.
Why Income Diversity Matters
The best reason to cultivate additional revenue streams is so that your finances aren’t completely ruined if you lose a source of income. For those with traditional jobs, the loss of employment can be devastating. If you have another income stream, it reduces the overall impact of a job loss. While your additional sources of income might not completely replace what you lost, it can help cushion the fall — especially when combined with unemployment benefits and other resources.
Income diversity can also help you shore up your finances by allowing you to use the extra income toward investing or building an emergency fund. If you have a main source of income, you can pay your bills with that and use your secondary sources to build a cushion for you. This can protect you down the road when you run into other financial issues.
How I Diversify My Income
Because I don’t have a “real” job, my income diversity approach is a little different. Other freelancers can probably relate to the way I do things.
My main concern is that I don’t rely too heavily on a single client. My largest client accounts for about 1/3 of my monthly income. I try not to let any client account for more than that amount. You never know when a gig will come to an end and you have to apply for another one.
The rest of my income through other gigs is large enough for me to live on if I lose my biggest client. In fact, I could lose half my clients and still be able to continue living my current lifestyle.
However, I’ve been thinking more about income diversity lately, and whether or not I am comfortable with just relying on my work for hire. As a result, I’ve been branching out into other projects and considering other ways to make money through professional licenses. I’ve also been working on building a dividend investing portfolio for the last few years. It’s not big enough to support me right now, but someday the dividends will provide another income stream.
You don’t have to have multiple huge income streams right now to be successful. Start building income diversity a little bit at a time, and carefully direct your resources so that eventually you will be in a stronger position of financial freedom.