Diversification is a concept that I’ve embraced all my life. In the past, I have discussed investment diversification and also touched on the concept of income diversification. Today, I want to more thoroughly explore the idea of diversifying your income. When you think about income, most of you will immediately think about your full-time job (or part-time 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. Retirement aside, diversify your income is something that I believe you should start working on as soon as you can.
Let’s examine how you can start diversifying your income. For the majority of younger Americans, the income allocation probably looks something like this:
- 97% or more from from their job
- 3% from investment — i.e., interest, dividend, and capital gains
If you’re just starting out on your journey to diversify your income, I suggest working on the basic things like (assuming you already paid down your debt):
- Making sure your savings earn the highest interest rate possible.
- Move some of your savings into CDs and build a CD ladder.
- Invest in the stock market. If you’re younger, try to invest for long-term growth. If you need immediate income, you can invest in dividend paying stocks. Make sure you diversify your investment and invest in other asset classes, such as, bonds, commodities, and REITs as well.
- If you have extra money, you can try a more non-traditional investment like Lending Club. Here is a link to my sample Lending Club portfolio.
For example, this is how my current income looks like:
In addition to the ideas suggested above, take a look at my other articles: Extra Income Guide and 40+ Passive Income Ideas and Ways to Make Extra Money for more ideas on how to build additional income streams.
Other articles about income diversification:
- Diversification of Income at My Dollar Plan
- Multiple Income Streams: 10 Ways to Earn Extra Income at The Dough Roller
- Diversify Your Income to Prevent Financial Problems at Life Optimizer
- Diversify Income Streams to Survive a Recession at My Work At Home Mom Blog
Pinyo is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.