What Does Diversifying Income Mean?
Diversifying income means generating profits from two or more sources instead of just one. Diverse income can protect you from losing your only job. It can help you save more money or invest in your future. There are many side job opportunities online, including e-commerce and content writing. You should determine how much time you have and how much you are willing to commit to extra hours, which will dictate the nature of your additional income sources.
Benefits of Income Diversification
Angela Moore, a certified financial advisor and founder of Modern Money Advisor, a fee-only financial planning firm, states, “Diversifying your income can provide stability. It can protect you from losing income due to layoffs, illness, disability, discrimination, and more,” Moore said in an email interview with The Balance. “Having multiple income sources can have an incredible impact on your ability to build wealth and/or fund retirement.”
Diversifying Income During a Recession
Establishing more than one source of income can be a pathway to financial independence away from building some “income insurance” if you lose your primary job. “Looking for multiple sources of income is a typical behavior of the next millionaire next door,” according to Sarah Stanley Fallaw, co-author of the book “The Next Millionaire Next Door.”
Active Income vs. Passive Income
Income is divided into two categories: active and passive. Active income is earned from a job with an employer or from running your own business. Passive income can come from rental properties, dividends, or investment income. You don’t have to work set hours to earn it. It pays you even while you sleep.
What You Can Do to Diversify Income
Online businesses are a low-cost way to build passive income. Creating your own website can generate passive income from ads, referral fees, or selling products or services. Platforms like Shopify make it easy and affordable for anyone to create and manage an online store. A significant investment is the time you will take to research and build a plan.
Drawbacks of Income Diversification
One of the few constants in life is that there are only 24 hours in a day. You will have less time for other things if you take on part-time work, such as ridesharing or food delivery. Diversifying income is not worth the effort if your full-time job is demanding and you need that income to survive. Ensure that the additional demands of your passive business activities do not affect your job performance or put your health at risk.
Conclusion
Passive income can work for you while you sleep and may be a source of wealth building. Diverse income can provide some protection against losing your primary job or other economic downturns. Adding active income, such as working for a rideshare company or doing a side hustle, can be a way to pay off debt or save money. But this means committing to a certain amount of time. Investing in financial markets, owning rental properties, or starting an online business offers opportunities to build passive income, but be sure to conduct the necessary research.
Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and maintain the accuracy, reliability, and quality of our content.
Pew Research Center. “The Majority of Americans Who Lost Jobs or Wages Due to COVID-19 Are Concerned That States Will Reopen Too Quickly.”
Source:
https://www.thebalancemoney.com/diversify-your-income-sources-357629
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