What is Income Diversification and Why it is Important
, on January 13, 2009
Diversification is a concept that I’ve embraced most of my life. In the past, I have discussed investment diversification and also touched on the concept of income diversification. Today, I want to explore the idea of diversifying yours. When you think about income, most of you will immediately think about your job. However, if you want to retire, you’ll need income from other sources beside your job. As such, a way to determine how close you are to retirement is to look at how much income you have that is not coming from your job. The general rule of thumb is you’ll need about 80% of your current income to retire.
Let’s examine how you can start diversifying your income. For most of Americans, the income allocation probably looks something like this:
- 95% income from job
- 5% income from investment — i.e., interest, dividend, and capital gains
One way to diversify your income is to build alternative income sources. For example, this is how my current income looks like:
- 77% income from job
- 18% online businesses income
- 5% income from investment
There are many ways you can start building alternative income — some popular ideas include investing in a rental property and starting a business. However, it could be as simple as building up your investment portfolio, starting a CD Ladder, or lending in peer lending networks.
You can see my Extra Income Guide for ideas on how to start earning additional income and diversify your income streams.
Other articles about income diversification:
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About the AuthorPinyo
is the owner of Moolanomy Personal Finance
and an entrepreneur with over 20 years of business experience. He has a strong appreciation for business management, investing, and wealth building. He has written for many online publications, including American Express and U.S. News.
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