Diversified Income

Nearly everyone knows that, when it comes to investing, you shouldn’t put all of your eggs into one basket. Investing in many different types of investments helps lower the risk that a downturn in a particular area will wipe you out, financially. (See the story about a man who only invested in street cars.)

Most people don’t take what is common knowledge about investing and apply it to other areas. In particular, they don’t apply it to their income. When you are in a position where all of your income is determined by a single employer, you are just like the guy who had all of his money in street cars.

Many dual-income families have some level of diversification by having two adults working at two separate jobs. This does create a bit of diversification, but chances are both jobs are in a similar geographical area, and booms and busts can be local in nature rather than just by market sector.

Your job is not secure

If you haven’t realized it yet, your job isn’t secure. It can go away, and it doesn’t matter how indispensable you are. Businesses fail for a variety of reasons, and it may not matter how important you are to the person you work for, directly. Having some sort of income from your own business is a great step toward insulating yourself from other people’s business mistakes.

The sooner you understand that your employer owes you nothing, the sooner you can take charge of your own financial future.

I’m not trying to encourage you to just quit your job and go out on your own. I’m trying to encourage you to see the opportunities around you and take advantage of monetizing hobbies or activities that you may enjoy. This isn’t about getting rich. It is about having a more stable base of income sources.

Evaluating opportunities

A safe approach to income diversification is to develop a number of other income sources that don’t rely on your job. Here are some features of an ideal diversified income opportunity:

1. Minimal or flexible time commitment. You want to create income from either a hobby you do already or from something that doesn’t require a significant time commitment each week. It is also good if most of the time required is flexible in nature.
2. Scales up and down. An ideal diversified income opportunity is something that can be scaled up or back down. You want to be able to put a flexible amount of time into it, and it needs to be able to expand and contract without hurting your ability to have long-term success.
3. Residual income. Ideally, you want something where the time you invest gives you payments for a long time.
4. Autopilot capability. An opportunity that you can eventually let run itself offers you a great deal of flexibility.

It may be difficult to find an income opportunity that meets all of those requirements. That is okay. The list is more of a way to compare different opportunities than a check list to follow precisely. It gives you a way to evaluate the strengths and weaknesses of different ideas you may want to try.

Small amounts matter

Even a small amount of income from a source other than your job matters. When I started Productivity501, I remember being excited when it was enough to cover my $30 per month phone bill. Then it paid my electric bill. Now it pays my mortgage.

Don’t overlook something because the amount seems too insignificant. Make sure you evaluate how much time it takes to get to a certain level of income.  Even if it is just $200 per month, if it takes a minimal amount of time, that $200 represents money that isn’t tied to your employer.

Income diversification ideas

Here is a short list of ideas I’ve seen people doing to make a side income:

• Blogging and websites – Productivity501.com is a good example. If you can get consistent attention online, there are ways to monetize that attention. It isn’t easy. You are competing with everyone anywhere in the world, but if you can find an unserved niche, it is possible to create a site that will generate traffic. Many people use their website to help promote a book or other product they are trying to sell.
• Writing books– I know of a guy who makes a decent living selling books from his home on how to coach youth football and a variety of other topics.
• Log book – One of my uncles has a side business where he sells log books for crane operators through the mail. At the end of each year, he sends out order forms and then gets the books printed and shipped. It doesn’t make him rich, but it also doesn’t require much effort.
• Window washing – I used to live next to a guy who had a small trailer of window washing supplies. He’d spend a few hours on Saturday morning washing windows of local houses and make several hundred dollars per hour.
• Photography – I know several people with photography skills that occasionally do weddings or portraits to make some extra cash.
• Mums and flowers – Near our house is a family that sells mums once each year. They have a large portion of their yard set up with drip irrigation, and over the summer, you can see them getting everything ready little by little. When fall comes, they have beautiful plants for sale. I don’t know how much they make from it, but it is evidently enough to keep them doing it year after year.
• Cell tower cleaning – I have a friend who is a teacher. During the summer he goes around and cleans the base area around cell towers. It is evidently a pretty profitable job, and he has invested in the equipment he needs to make it go very quickly.
• Reselling items – A college friend of mine buys used pianos and resells them on the internet. Pianos have a fairly large margin since people who don’t want a piano see it as being not very valuable and people who do want a piano see them as being worth quite a lot. Exercise equipment is another product that has this huge gap between the value that buyers and sellers place on the same item. Many items that require special knowledge and equipment to move fall into this category as well.
• Calligraphy – I have a friend who has beautiful handwriting. She does calligraphy for wedding invitations and fancy addressed envelopes.

That is just a short list. There are income opportunities all around you, and usually the most profitable are the ones that aren’t on this list, but that make use of your specific skill or passion.

Conclusion

There are a number of different sources of income. Make sure you aren’t just depending on your employer. Even a few hundred dollars per month from another source can give you additional financial freedom that gives you some level of protection against layoffs and job instability. A few hundred dollars a month gives you some income that isn’t dependent on your boss. It also can serve as the foundation for the confidence you need to start your own full-time business if you ever decided to do that.