“Don’t put all your eggs in one basket” is a common phrase for investing, but it also applies to your income. Diversifying your income streams is a great way to position yourself against the unknowns: job loss, downturn in the market, business failure, etc.
We made a goal to work on diversifying our income. Here’s what the distribution currently looks like:
Jobs. We have wonderful jobs that we enjoy. However in our quest for financial freedom, we want to minimize the percentage of income coming in from our jobs by increasing the other areas. Our jobs are now at 71% of our total income. I’ll be monitoring this number going forward.
Miscellaneous. This category includes all of our random finance ideas: credit card arbitrage, free money, and money making ideas the don’t fit nicely into the other categories.
Business. The launch of our business last year was successful and it’s growing nicely. At the current pace it will probably represent about 5% of our overall income. Unfortunately it takes a lot more than 5% of our time right now, but hopefully that too will change over time as the earnings grow.
Investment Appreciation. While this isn’t disposable income that I can actually spend, it does increase our net worth. And ultimately the goal is to live off our investments, so it has a place in monitoring our income distribution.
Investment Income. Our investment income (interest, dividends and capital gains) are relatively small. Most of our investing is done inside retirement accounts. I like to keep it separate from appreciation because of the tax treatment.
Action Plan
I’m working on coming up with a goal for our percentage of income from our jobs. I’m hoping a year from now it would be at 50% or less, but I’ll need to work on some more steps to get there.
Do you try to diversify your income? And if so, how are you going about it?
Read what others have said about diversifying their income:
- 40 Alternative Income Ideas and Resources at Moolanomy
- My Sources Of Alternative Income And How I Make Them Work For Me at My Two Dollars
- How To Create An Alternative Source Of Income Part 1 at The Financial Blogger
- Defining Alternative Income at Lazy Man and Money
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Great stuff Madison, thanks for including me!
David@My Two DollarsApril 21st, 2008 at 9:58 am
I’m also trying to diversify income streams in an effort to get my “passive” income up to the minimal expenses. This should help with my eventual goal to start my own business, or write full-time, neither of which I can afford to do until I have sources of income besides my current FT job.
Frugal DadApril 21st, 2008 at 10:35 am
Great article! People often talk about diversifying your investments, but you don’t see near as much on doing the same with your income. I think it is just as important. I concentrate mostly on increasing my investment nest egg and I am just beginning to see a trickle from my blogging efforts. I am going to continue to grow both of these.
Jeff@MySuper-Charged LifeApril 21st, 2008 at 10:46 am
Quite a good concept of looking at your income streams. I am doing the same, but never thought about keeping track of exact percentages (I should do it though).
The Shark InvestorWhat’s the business producing 5% of your income by the way?
April 21st, 2008 at 2:38 pm
I love the illustration. You have really good/fresh perspective on things. Love the article.
PinyoApril 21st, 2008 at 4:51 pm
April 21st, 2008 at 9:46 pm
Great tips and explanation of the concept
Writer's CoinApril 25th, 2008 at 7:13 pm