Diversify Your Income

Posted by Madison on April 21, 2008

“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.

Update: Here is our current diversification of income. The following is a historical look at our income diversification plan:

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:

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